Savings and Credit Cooperative Societies have emerged winners in the drawn-out battle between the government and commercial banks over the cost of lending.
Over the past two years, the government through Central Bank of Kenya, has been unsuccessful in seducing commercial banks to lower their interest rates in line with improved market conditions.
As a result, the government has announced that it will divert the disbursement of devolved funds — the youth and women enterprise funds — from commercial banks to saccos, as it seeks alternative and cheaper credit outlets.
This is a blow for banks as it takes away a key revenue stream. “We will use Saccos since they are more accessible and their conditions more favourable to borrowers compared to other institutions,” Gender and Children Affairs minister Esther Murugi, said.
The government, she said, will from July this year release between Sh10 million to Sh15 million to the Saccos to give as loans to women groups across the country.
Ms Murugi was speaking in Sotik town where she disbursed cheques worth more than Sh712,000 the Women Enterprise fund to 15 women groups.
Last month, CBK’s top decision-making organ, the Monetary Policy Committee, instructed the regulator to look for alternative private sector lending outlets, in a bid to counter refusal by commercial banks to lower their cost of credit.
In its market briefing, the committee noted that all the factors that are important in setting of lending rates had improved. “Despite these monetary policy successes, the committee was disappointed … that the lending rates did not respond significantly as desired,” the committee chairman and CBK governor, Prof Njuguna Ndung’u, said.
The committee then instructed CBK to support growth of institutions that support development banking and lending to small-scale enterprises.
Resorted
“The flexibility of saccos compared to commercial banks makes then ideal, especially for development in rural areas,” Ms Murungi said. “That is why we have resorted to using the savings societies.”
The minister added that saccos are more flexible in their conditions unlike commercial banks, which have a lot of red tape making it difficult for the women to qualify for the loans.
Currently most saccos charge interest rates of a about 10 per cent compared to commercial banks that charge up to 24 per cent on a facility with similar terms.
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