Savings and credit cooperatives (Saccos) issued more loans than commercial banks in the first eight months of this year, reflecting the choice of customers put off by high interest rates charged by the latter.
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 the drop 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 CBK data.
Harambee Sacco chief executive officer George Ochiri says Saccos have been swarmed by requests for not just new loans but also pleas by customers to buy out facilities from commercial banks amid the prevailing high interest rates.
“We are under pressure because you find that many people are transferring their loan facilities to us. We are also seeing a sharp increase in loan requests from customers as commercial bank interest rates remain in the 20 percent range,” he said.
Interest rates on Sacco loans have remained relatively unchanged against the general rise in domestic interest rates as the cooperatives benefit from a lower funding base.
Sacco loans are usually charged at an average rate of 12 percent on reducing balances, keeping the effective cost of credit from the facilities in the single digits.
“We have an internal policy as Saccos on interest rates. We have the advantage of charging lower interest rates to banks because a large proportion of funds lent out are from our members. Our interest rates are set at 12 percent on reducing balance, which brings the effective interest rate to around 7.5 percent,” added Dr Ochiri.
CBK last week acknowledged the resilience of Saccos in loan disbursement, with the cooperatives leading the way in credit issuance this year, providing relief to cash-strapped businesses and households in a soft economy.
Credit growth by Saccos stood at 9.3 percent year-over-year in August, albeit lower than the growth rate of 13.6 percent posted in December.
Commercial banks saw a much sharper depreciation in disbursements as credit growth from the entities collapsed to 1.3 percent in the same month from 12.2 percent at the end of last year.
“Credit extended by Saccos has been resilient, partly reflecting comparably lower lending rates compared to the banks,” CBK Governor Kamau Thugge said last week.
Meanwhile, lending by microfinance banks has contracted sharply since the turn of the year, with the year-over-year growth rate tumbling by double digits in August.
The microbanks’ loan book stood at Sh43.5 billion in August 2024 compared to Sh44.5 billion in December, or 0.9 percent of total credit.
Banks, nevertheless, remain the leading source of credit in the economy contributing to 83.6 percent of total credit in comparison to a 15.5 percent share by Saccos as of August this year.
Saccos view the government as the biggest threat to private sector credit growth as the exchequer offers market-beating returns on holders of Treasury bills and bonds.
