Kenyan savings and credit cooperative organizations (saccos) are increasingly innovating new products to protect their turfs following the enactment of a law that put caps on banks interest rates.

From launching mobile phone loans to offering holiday packages, the saccos are coming up with new products to safeguard their customers and lure new others.

The law allows saccos to charge interest rates averaging 12 percent, which is so close to the 14 percent commercial banks are currently charging following the capping of charges.

According to the new loan regime that took effect last September, banks can only charge 4 percent above the Central Bank rate, which currently starts at 10 percent.

However, while banks can offer loans, some unsecured, to anyone as long as they meet the stipulated requirements, to get a loan from a sacco, one must be a member and be guaranteed by members.

The regulations, therefore, put the saccos at a disadvantage as compared to banks, whose majority are now offering loans via mobile phones, have taken their services online and are also offering them through agents.

This has prompted the ongoing frenzy of innovation among the dozens of savings and cooperative societies operating in the East African nation to survive.

One of the new products introduced by saccos is m-advance, which is a mobile loan salary advance to members.

Initially, one had to visit the sacco office, fill a form and wait for about a day for money to be wired into their account. But the mobile phone loan is instant, just as those offered by commercial banks through the same model.

Besides offering mobile loans, the saccos have also taken their services online which include new member registration and loan application.

Further, the saccos are reducing their interest rates to match those of banks in bid to be competitive. The law keeps the institution’s interest rates at 12 percent but some saccos have been charging as high as 20 percent.

A good number of saccos have reduced their rates to between 10 percent and 12 percent especially for loans like emergency and school fees.

Henry Wandera, an economics lecturer in Nairobi, noted that with the current interest rate regime, saccos have no choice but to be innovative to compete with banks.

“The law makes banks take the battle for customers to saccos, which had a head start in the past due to low interest rates.”

“Commercial banks have further teamed up with telecoms to offer mobile loans. All this makes the business environment tougher for saccos, therefore, they have no choice but to fight back and compete for customers, the reason they are being innovative,” he said.

Kenya has over 5,000 registered saccos which hold up to 5.8 billion dollars and have built an asset base of 6.2 billion dollars. Enditem

Source: Xinhua/