The Rise Of Financial Inclusion With SACCOs

If you walked around any of our events and randomly tapped someone on their shoulder, chances are they are in a Savings and Credit Cooperative (SACCO) and also know someone in a SACCO. As financial institutions owned and managed by their own members who share a common bond, such as working for the same employer or belonging to the same community, members who pool their savings and use these funds to provide affordable credit to each other find magic in financial inclusion.

SACCOs are increasingly playing a vital role in driving financial inclusion in many parts of the world, especially in developing countries. They are popular in African countries such as Kenya, Uganda, Tanzania, Ghana, and Rwanda just to name a few. Africa has 37.8 million members according to the latest data from the World Council of Credit Unions (WOCCU).

According to the World Bank, financial inclusion means individuals and businesses can access useful and affordable financial products and services meeting their needs, including transactions, payments, savings, credit, and insurance, delivered in a responsible and sustainable way. This access to a transaction account is the first step toward broader financial inclusion because it allows people to save, send and receive money.

African SACCOs are built like M-PESA – which is incidentally a fintech beloved by many when it comes to disbursing SACCO funds – to serve people excluded from traditional banking services such as low-income earners, small business owners, and rural communities. With the charm of no assets as collateral members can access credit using their deposits and security of guarantors. It gives them financial power in a way banking does not seem to be able to.

Before the COVID-19 pandemic, most SACCOs operated in the traditional way that involved the filing of manual forms to apply for loans or physical visits to offices to deposit funds. COVID ushered new social rules such as social distancing, lockdown, which forced many SACCOs to embrace technology to continue serving members. They adopted digital core banking systems, mobile banking technologies, web portals, online applications, digital customer support systems, and data analysis to roll out new services to members which helped expand reach and hence deepen financial inclusion.

Henry Maisiba, ICT Manager at Kimisitu SACCO which currently houses over 11,400 members, a generous portion of whom are in the Diaspora says, “Before the pandemic, Kimisitu SACCO members used to fill physical loan forms and register for membership through physical forms. This changed completely to online after COVID-19 hit and now members make their loan applications online and new members register online. Therefore, I would put the percentage shift to 98 per cent from a meagre 30 per cent before the pandemic.

Through technology, SACCOs can offer tailored specific products and increase their reach to new members. According to Maisiba, technology has enabled Kimisitu to, “Offer products that are accessible to everyone and some that are geared towards specific groups like chamas and farmers. Mobile banking has a deeper reach in society and hence easily accessible. This has made SACCOs reach far areas and serve members in far-flung areas. Mobile banking has allowed SACCOs to roll out more loan facilities and other services to the benefit of members.” Specific products such as the ones mentioned above help promote financial inclusion by making formal financial services available, accessible and affordable to all segments of the population. It ensures that economic growth performance is inclusive and sustained.

Kimisitu has also implemented a web portal where members can apply for their loan needs, check their statements, check their guarantor status, and request for changes to their accounts e.g., update of next of kin and beneficiary details. “This has gone a long way ensuring that members are easily able to reach their SACCO and make various applications from their comfort. Kimisitu has also a portal where members of the public who wish to join the SACCO can register.”

Kelvin Ebole, ICT & Business Innovations Manager at Safaricom SACCO highlights that mobile banking and digital lending have provided a safe space for members to interact with their SACCOs and access facilities fast when in need and discreetly. “The idea of anywhere anytime banking has revolutionized not only SACCOs but financial institutions at large. Since the wake of COVID-19, for instance, Safaricom SACCO has doubled on its mobile loan adoption. This has had a positive impact on Interest income in the last few years even though the interest rates were reviewed downwards to cushion members from the COVID-19 effect. This in essence speaks to how availability of products and services can be heightened by properly executing a well thought out technological strategy.”

Technology has also enabled SACCOs to integrate their services with players in the fintech ecosystem like banks. For example, Kimisitu have integration with Cellulant to enable our members to pay utility bills. The SACCO has also integrated with local Kenyan banks to enable its members to transfer their funds to their bank accounts. This has enabled our members to make these seamless transactions from their comfort hence efficiency.

Data analysis has enabled customers to understand their customers better, therefore, accord them the right product and services. Ebole says, “Deploying various data analytical tools to your SACCO environment allows you to understand your member better. This will assist you develop solutions, products, and services geared towards individuals, groups, or whatever demographics we see fit. Data analytics will allow the SACCO an opportunity to dissect and understand further the needs as posed by their membership who fall in the traditionally excluded groups.”

But digital transformation for SACCOs is not without challenges with the main one being cybersecurity. Financial institutions are leading targets of cyber-attacks. SACCOs that invest in technology are, on the flip side, exposed to hackers who try to gain access to their core banking systems with the intent or stealing money or crucial data.

A big challenge for SACCOs would, however, have to be the cost of acquiring the technology. Maisiba argues for this saying, “SACCOs can overcome the big budgets needed for service delivery through technology by continuously budgeting for technologies in phases, hence making it easy to achieve the goals.” Ebole highlights the need for SACCO CIOs to “Push the digital transformation agenda, punch on numbers and provide proper direction on the value of technology in a SACCO, the ROI that comes with it and the need to be aligned with the current trends in banking.”