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Covid-19 Threats to Cooperative Financial Institutions (CFIs): Kenya’s Regulatory and Supervisory Response

Created Aug 07 2020, 9:47 AM by Baloko Makala

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: 

  • A decline in the balance of gross loans from $4.3 billion in January, 2020 to $4.2 billion in May, 2020 (see table 1). This is compounded by deteriorating loan quality as the NPL ratio rose from 8.8 per cent in March 2020 to 9.8 per cent in May, 2020.

Table 1: Comparative Growth in Gross Loans (figures in billion USD)

  • Slow growth in member deposits, albeit the composition of deposits remains unchanged. Over the period January to May 2020, member deposits registered growth relative to prior years (see table 2). However, growth from April to May was negligible and this is likely to persist in the coming months.  

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.


It seems inevitable that measures such as those adopted in the banking sector will be necessary for CFIs, including:

  • Restrictions on new loans to limit exposure;
  • Restructuring of existing credit facilities:
  • Moratoriums of loan repayments;
  • Waiver of service fees and charges; and
  • Moratorium of foreclosures as facilities are restructured;


Concerning issues


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


  • Introduction of a new daily liquidity monitoring report to monitor the liquidity positions in real time, thus allowing for proactive interventions/actions by the Regulator.
  • Review of the Loans performance to better capture and track the restructuring of loans, which is expected to intensify with subdued business activity and/or panic purchases.
  • Issuing of guidance notes on key areas to guide the CFIs:
    • Going slow on project and business loans to members in the short term, as a strategy to manage liquidity.
    • Loan loss provisions and restructuring where CFIs have been given opportunity to restructure loans and advances that were performing as of March 1st, 2020 and whose deterioration is directly attributable to the pandemic
  • Negotiating with MNO (Safaricom PLC) and Central Bank of Kenya (CBK) to waive transaction fees applied to both the Banks as PSPs and the Mobile Network Operators.  This will allow CFIs to waive charges for transactions not exceeding Ksh.1,000 between mobile wallet and members’ accounts.



We anticipate that the impact on CFI financial performance will be evidenced in:

  • Increased operational costs as business comply with measures to contain spread of COVID-19;
  • Decrease in savings and deposit contributions as members adjust to deal with the pandemic;
  • Reduced earnings from lending business which for SACCOs constitute an average of 85 per cent of total income;
  • Decline in fee income due to waivers and reduced business activity;
  • Pressure on liquidity as non-performing loans rise and loans are restructured; and
  • Increased default, which will require increased loan impairment reserves.


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:

  • Lack of adequate skills in the CFIs to strategize on how to overcome the impact of the pandemic thus over reliance on the regulator for directions
  • Lack of adequate resource for SASRA to adequately address the issues affecting the market
  • Immature regulatory environment with missing key ingredients such as Deposit Guarantee funds as safety net for members’ compensation in the event of a failure
  • Small CFIs without robust/effective technological systems to withstand the impact of COVID-19
  • Inability of the market to distinguish advocacy roles from regulatory role thus heaping expectation/responsibility on issues that can be easily addressed by the federations.
  • Need for a support mechanism to help the CFIs cope with the new normal, including grants to support management/leadership skills development.