Embracing intersacco lending: a key strategy for digital SACCOs in Kenya

In the fast-evolving landscape of the financial industry, digital Savings and Credit Cooperative Societies (SACCOs) in Kenya are increasingly turning to intersacco lending as a strategic approach to maintain competitiveness and propel growth.
This innovative practice involves SACCOs lending to each other, either directly or through a central fund, to meet their members’ credit needs, often at lower interest rates than the market average.
Embracing intersacco lending not only expands lending capacity but also fosters collaboration, diversifies lending portfolios, and promotes financial inclusion.
Kenya’s Cooperative movement boasts over 15,000 registered SACCOs with a membership exceeding 20 million, playing a vital role in providing financial services, particularly in rural and underserved areas.
Recognizing the importance of affordable credit access, the government has championed intersacco lending initiatives to strengthen the financial sector. The Intersacco Lending Program, launched in 2018, facilitates SACCO collaboration to enhance lending capacity and accessibility.
The structure of intersacco lending is supported by the Cooperative Bank of Kenya in collaboration with the Kenya Union of Savings and Credit Co-operatives (KUSCCO).
Eligible SACCOs, with a minimum capital base and registration status, undergo a credit rating assessment to determine their suitability for participation. Once approved, SACCOs can access the central fund managed by the Cooperative Bank, enabling them to lend to their members at favorable rates.
Digital SACCOs have warmly embraced the Intersacco Lending Program, witnessing increased participation and mutual benefits.
The government’s Digital Literacy Program further enhances the efficiency of the strategy by promoting the adoption of digital technologies among SACCOs.
Mobile banking and online lending platforms enable SACCOs to reach more members, reduce operational costs, and manage risks effectively.
Benefits of Intersacco Lending
- Diversification of Lending Portfolios: Collaboration enables SACCOs to access new markets and loan types, reducing risk exposure.
- Lower Interest Rates: SACCOs can offer competitive rates by accessing cheaper funding sources through the strategy.
- Network Expansion: Intersacco collaborations facilitate relationship-building and knowledge-sharing among SACCOs, promoting competitiveness and growth.
Challenges Faced in Intersacco Lending
- Lack of Regulatory Framework: Regulatory uncertainties hinder trust and operational clarity among collaborating SACCOs.
- Trust Issues: Competing interests and concerns about credit assessment quality impede trust-building efforts.
Solutions
- Regulatory Development: Establishing clear regulatory frameworks and risk management guidelines to enhance operational transparency and trust.
- Digital Integration: Leveraging digital technologies to streamline lending processes and enhance trust through data transparency.
- Relationship-Building: Engaging in industry events, knowledge-sharing sessions, and collaborative projects to foster trust and cooperation among SACCOs.