Savings and Credit Cooperatives (SACOs) issued more loans than commercial banks in the first eight months of this year, reflecting the choice of customers who were put off by the high interest rates charged by commercial banks.
New data from the Central Bank of Kenya (CBK) shows that credit disbursed by Saccos rose by Sh46 billion between January and August this year to Sh749 billion from Sh703 billion, defying a decline in loans issued by commercial banks.
In contrast, loan disbursements by commercial banks fell by Sh154 billion in the same period to Sh4.045 trillion from Sh4.199 trillion at the end of December last year, according to Central Bank of Kuwait data.
George Oshiri, CEO, Harambee Sacco, says we have been inundated not only with applications for new loans but also pleas from customers to purchase facilities from commercial banks amid the prevailing high interest rates.
“We are under pressure because you find many people shifting their loan facilities to us. We are also seeing a sharp increase in loan applications from customers as interest rates at commercial banks remain in the 20 percent range,” he said.
Interest rates on SACO loans have remained relatively unchanged against the general rise in local interest rates as cooperatives benefit from a lower financing base.
SACO loans are typically charged at an average rate of 12 percent on declining balances, keeping the actual cost of credit of the facility in the single digits.
“We have an internal policy like Saco on interest rates. We have the advantage of charging lower interest rates to banks because a large proportion of the money lent comes from our members. Our interest rates are set at 12 percent on a reducing balance basis, which raises the interest rate,” Dr. Oshiri added. The actual interest rate is about 7.5 percent.
The Central Bank of Kuwait last week recognized Saccos’ flexibility in disbursing loans, with cooperatives leading the way in issuing credit this year, providing relief to financially strapped businesses and households in a weak economy.
Credit growth by Saccos reached 9.3 percent year-on-year in August, although lower than the 13.6 percent growth rate recorded in December.
Commercial banks saw a sharp decline in disbursements as credit growth from entities collapsed to 1.3 percent in the same month from 12.2 percent at the end of last year.
“Credit from Sakos has been resilient, partly reflecting lower lending rates compared to banks,” Central Bank of Kuwait Governor Kamau Thog said last week.
Meanwhile, lending by microfinance banks has contracted sharply since the turn of the year, with year-on-year growth falling by double digits in August.
Small banks’ loan book stood at Sh43.5 billion in August 2024 compared to Sh44.5 billion in December, or 0.9 per cent of total credit.
However, banks remain the main source of credit in the economy contributing 83.6 per cent of total credit compared to a 15.5 per cent share by Saccos as of August this year.
Sakos sees the government as the biggest threat to credit growth in the private sector, as the Treasury offers market-beating returns to holders of Treasuries and bonds.
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