Blog » Covid-19 Threats to Cooperative Financial Institutions (CFIs): Kenya’s Regulatory and Supervisory Response
Covid-19 Threats to Cooperative Financial Institutions (CFIs): Kenya’s Regulatory and Supervisory Response
By John Mwaka, Chief Executive Officer, SACCO Societies Regulatory Authority (SASRA), 8 July 2020
Kenya has put in place precautionary measures including a curfew, travel restrictions and a mandatory fourteen-day quarantine in order to slow down the spread of the COVID-19 virus. As of the time of the Webinar on CFIs (July 8, 2020), the fundamentals of CFIs in Kenya (referred to as SACCOs) appeared stable. However, there are clear signals that COVID-19 will adversely affect the performance of the CFIs. In fact, the observed general trend is showing signs of deterioration:
Table 1: Comparative Growth in Gross Loans (figures in billion USD)
Table 2 Comparative Deposit Liabilities Growth
Aincrease in the number of SACCOs that do not comply with capital adequacy requirements as a result of reduced earnings and the required high provisions on NPLs.
The most concerning issue for the sector is the quality of their loan books going forward as a result of members losing their income/employment and of pay cuts which affect their repayment ability thereby leading to poor loan quality. Similarly, job losses and pay cuts will lead to a decline in members’ savings which is the primary source of funding of the SACCOs. The consequence will be a shrinking loan book, also associated with restrictions on new lending to limit exposures and adapt to the impact of COVID. For instance, SACCOs no longer issue school fees loans due to closure of school activities.
Some classes of CFIs are likely to be severely affected. These include those with membership in the aviation industry, horticulture and hospitality which are currently among the most affected sectors.
On the other hand, it is encouraging to see the resilience demonstrated by some CFIs as evidenced by their prudential indicators six months into the pandemic. In addition, CFIs quickly rolled out new technologically driven products to address the challenges of physical transactions associated with the pandemic.
Measures adopted by SASRA, and other authorities, in support of the CFI sector
We anticipate that the impact on CFI financial performance will be evidenced in:
While it is too early to ascertain whether some CFIs will exit the sector, it seems likely that some CFIs that focus on a similar membership will look for mergers to gain synergy. We see the Federations having an important role to play not only in consolidation but also in offering practical remedies to ensure a mitigation of the impact of COVID-19.
Remaining challenges for the supervision of the CFI sector in Kenya: