Higher-earning Kenyans scouting for better returns on savings pushed accounts with more than Sh1 million in savings and credit cooperative societies (Saccos) to grow at the fastest pace in five years to hit 92,000 at the end of last year, defying the economic hardships facing many Kenyans.
The latest Sacco Societies Regulatory Authority (Sasra) disclosures show the accounts jumped by 29.6 percent from about 71,000 in the previous year, being more than double the 39,000 that were holding such amount five years earlier.
The 92,000 accounts—an equivalent of 0.63 percent of the total 14.52 million accounts—were holding Sh163.28 billion or nearly a third (31.2 percent) of the Sh522.59 billion deposits held by 359 Saccos regulated by Sasra.
“This analysis is thus a testament to the fact that the number of deposit accounts holding more than Sh1 million grew at a faster rate of 29 percent in 2022 than all other categories of deposit accounts while the growth rate in the amount of deposits held in the deposit accounts with more than Sh1 million recorded the highest increase by 20.72 percent,” said Sasra.
The jump in the top savings from Sh135.26 billion was despite the economic challenges that had seen the number of dormant members in deposit-taking (DT) and non-withdrawable deposit-taking (NWDT) Saccos jump from 1.18 million to 1.22 million.
Sasra defines dormant members as those who had not made any financial transactions with their respective Saccos for six and 12 months period for DT-Saccos and NWDT-Saccos, respectively before the end of last year.
Read: Saccos eye State land for plantation agriculture
This is the first time for Sasra to make public the distribution of deposit accounts and the money held, coming in an environment where many Kenyans have suffered economic blows, including a sustained general rise in prices of goods and services amid near-stagnant earnings.
Sasra data showed about 93.06 percent of the 14.52 million accounts were holding up to Sh100,000, leaving 6.94 percent with deposits above Sh100,000.
This is in contrast with commercial banks where 2.9 percent of the 64.02 million accounts were holding deposits above Sh100,000.
The growth in Saccos’s top deposits can be attributed to the higher returns when compared with commercial banks.
While regulated Saccos paid an average interest rate of 6.92 percent on members’ deposits last year, that of commercial banks averaged three percent.
“These returns on members’ savings cement the dual comparative edge of savings in Saccos, which not only earns interest but is also applied as collateral against loans advanced to members,” said the Sasra.
The Saccos regulator now hopes the proposed changes to the current law to provide for a framework of appointing trustees to oversee a Deposit Guarantee Fund (DGF) to protect savers from losses on their deposits will be passed.
Kenya’s Sacco Societies Act assented to in 2008, provides for setting up a deposit insurance fund for credit unions, but the scheme has never been established to date. Sasra started operations in June 2010.
The Saccos regulator says a deposit protection scheme, which covers up to Sh100,000 deposits, will protect about 93.06 percent of all deposits but just about 10.84 percent of the entire deposits held by DT-Saccos
The sector 12 years ago rolled out prudential guidelines to help on financial stability of Saccos and this has boosted savings.
However, Sacco members have been left exposed unlike in the banking and insurance sectors.
Section 55 of the Sacco Societies Act sets the premise for the establishment of a DGF for the Sacco sector to provide protection for members’ deposits of up to Sh100,000, excluding shares, in the event that a Society collapses as a result of liquidity challenges or governance.
Sasra sees DGF, which is a form of deposit-insurance scheme, as a critical infrastructural pillar which will boost the savings culture within the Sacco system, by boosting confidence and trust among savers.
Underwriting Sacco deposits will see credit unions join the league of banks and insurance firms, which have schemes to compensate depositors and policyholders in the event of the financial institutions’ collapse.
Read: Saccos to receive Sh5.5 billion Co-op Bank dividends
Kenya Deposit Insurance Corporation compensates savers in banks and deposit-taking micro-financiers up to Sh500,000 immediately after a bank collapses, with the rest dependent on what is recovered later on.
The Policyholders Compensation Fund reimburses Sh250,000 per policyholder in the event an insurance company is declared insolvent.
A deposit protection scheme is expected to revolutionize the lucrative sector by insulating members’ deposits from unpredicted perils. This will serve as a critical and much-needed contingency plan. BY BUSINESS DAILY
