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Harambee Sacco to auction houses, land to boost cash flow

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By JAMES ANYANZWA
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The deposit-taking Harambee Savings and Credit Co-operative Society in Kenya has put several properties valued at over Ksh10 billion ($100 million) on auction, as part of measures to improve its cash flow position and comply with statutory investment guidelines.

The Saccos are not allowed to invest more than 25 per cent of total assets in real estate.

The decision taken by Harambee Sacco will ensure that its over 92,000 members, largely civil servants, receive loans and other credit facilities swiftly.

The properties earmarked for sale include houses and parcels of land that the society has been keeping on its balance sheet while struggling to raise cash to finance its daily operations.

The country’s third largest Sacco in terms of deposits slid into loss-making territory last year. It made a loss of Ksh145 million ($1.45 million) compared with net earnings of Ksh125 million ($1.25 million) in 2016.

This prompted the society to borrow Ksh1.2 billion ($12 million) from commercial banks to boost its liquidity position which has also been weighed down by increased loan defaults.

The society’s new chief executive, Dr George Ochiri, told The EastAfrican that prudent financial management, reduced bank borrowing and improved loan recoveries would help improve the Sacco’s cash position.

The society, which holds over Ksh16 billion ($160 million) in deposits, has been in the limelight in recent times for questionable financial transactions that prompted investigations into the state of its financial affairs.

“On financial performance, we have to promote a culture change among our staff, board members and delegates and enhance financial controls,” said Dr Ochiri, the former CEO of the Safaricom Sacco.

The society has also revamped its investment subsidiary — Harambee Investment Society Ltd — headed by former journalist Gichuki Kabukuru, to oversee new investments in the stockmarket, bond market and money market (Treasury bills and bonds).

“On investment, we have rejuvenated Harambee Investment Society to do business with other members,” said Dr Ochiri.

Kenya’s deposit-taking Saccos are facing liquidity pressures due to increased demand for short term loans that tend to peak in January, February, August and September, largely driven by the demand for school fees and other education associated loans.

John Mwaka, the chief executive of the Sacco Societies Regulatory Authority (Sasra), said that the demand for loans has continued to outweigh the deposits mobilised, putting pressure on these societies to look for alternative ways of raising cash.

According to the regulator, increased non-performing loans (NPLs) particularly in respect of the government-based deposit-taking Saccos such as Harambee Sacco is directly attributed to the ripple effects of delayed remittances of loan repayment deductions by the national and county governments, as well as certain government institutions.

In addition, the decentralisation of payrolls has often led to inordinate delays in the remittances and implementation of the loan deduction requests, leading to default by the members.

“Sporadic and unreliable remittances of loan repayment deductions by some governmental institutions and parastatals have also contributed to increased NPLs in these Saccos,” according to Sasra.

Sasra has set the minimum core capital for Saccos at Ksh10 million ($100,000), which must be met before a license is issued.

In addition, every institution must maintain a core capital of not less than 10 per cent of total assets at all times, a core capital of not less than eight per cent of its total deposit liabilities and institutional capital of not less than eight per cent of its total assets.

According to Sasra, the absence of a legal framework to allow Saccos access to the national payment systems and a functional central liquidity facility is a stumbling block for the stability and competitiveness of Kenya’s Sacco sector.

The central liquidity facility is expected to boost liquidity by allowing Sacco members to borrow from each other instead of going for expensive bank loans.

The facility, akin to the interbank market for commercial banks, is also expected to provide anchorage for the integration of Saccos into the national payment systems.

It is argued that Saccos particularly deposit-taking ones must brace for stiff competition from other financial service providers particularly with the growth in popularity of digital credit services that specialise in unsecured microcredit loans.

In addition, the implementation of the Banking (Amendment) Act, 2016 which set the interest rates payable on deposits held by commercial banks to not less than 70 per cent of the Central Bank rate (CBR implies the good rates or returns on deposits previously associated with Saccos are slowly being eroded.

Kenya has about 174 licensed deposit-taking Saccos. They hold an estimated Ksh442.27 billion ($4.42 billion) in assets, with the gross loans portfolio estimated at Ksh331.21 billion ($3.31 billion).



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