How digital lenders have affected SACCOS in Kenya

The landscape of Savings and Credit Cooperative Societies (SACCOs) in Kenya is facing significant challenges attributed to the rise of digital money lenders.
Observers within the sector have highlighted the mounting pressure SACCOs are experiencing from digital lenders, particularly amid escalating cases of loan defaults and diminishing income streams.
Patrick Nyaga, the CEO of CIC Insurance, says the urgency for SACCOs to innovate in response to the intensifying competition is vital. Nyaga urged SACCOs to explore new strategies for survival, emphasizing the need for agility in adapting to changing market dynamics.
“Banks and virtual money lenders have emerged as the biggest threats to SACCOs due to their availability and quick loan disbursement,” Nyaga stated, underlining the swift loan processing times offered by digital lenders compared to the more cumbersome processes typically associated with SACCO loans.
A research report by the Competition Authority of Kenya in 2021 revealed that digital lenders, including prominent names like Tala, Branch, and M-Shwari, are capturing a growing share of the lending market. These lenders offer loans up to Sh70,000, with rapid approval times and minimal requirements, such as the absence of guarantors, attracting a large pool of borrowers.
The proliferation of unregulated digital lenders is reflected in household surveys, indicating a substantial increase in borrowing from these platforms, from 200,000 individuals in 2016 to 2 million individuals in 2019.
Nyaga also highlights the adverse impact of the ongoing financial strain, exacerbated by the mandatory Housing Levy introduced by the Finance Act. The levy reduces members’ disposable income, affecting their ability to access loans.
Joseph Njoroge, CEO of Safaricom Sacco, emphasizes the imperative for SACCOs to innovate and prioritize customer needs in a digitized environment. He underscores the importance of adapting to the changing landscape to remain relevant and resilient.