THE most recent time Moses Kibet Biegon needed a quick loan was when his roof blew away. He got one from the Imarisha Savings and Credit Co-operative, in Kericho in western Kenya. Imarisha channels the savings of its 57,000 members into loans for school fees, business projects or, in Mr Biegon’s case, roof repairs. It runs a fund to help with medical bills. And it pays dividends to its members from its investments, which include a shopping plaza that it opened last year.
Savings and credit co-operatives (SACCOs) like Imarisha are the African version of credit unions: member-owned co-ops, usually organised around a community or workplace. Some are rural self-help groups with a few dozen members and a safe. Others have branch networks and mobile apps. The largest SACCOs rival banks; Mwalimu National, which serves Kenyan teachers, has even bought one.
The co-operative model brings “a more humane face” to finance, argues Robert Shibutse, Mwalimu’s boss. But SACCOs are not just a cuddly sideshow. In Kenya, where they are strongest, they provide more loans for land, housing, education and agriculture than banks or microfinance institutions. The World Bank estimates that SACCOs and other co-operatives account for over 90% of all housing credit in the country. In Rwanda they attract twice as many savers as banks. Membership is growing in Ghana and Tanzania.
SACCOs can be generous lenders, in part because their members are often colleagues or neighbours. That makes it easier to judge risks, urge repayment and serve the folk that banks tend to shun. They fill a “vacuum” in rural areas, says Lance Kashugyera, who leads a Ugandan government project on financial inclusion. In Kenya SACCOs typically offer better interest rates than banks. But members can view a loan as a right and are often allowed to borrow up to three times their savings. In 2016 the largest Kenyan SACCOs had loan-to-deposit ratios of 109%, meaning they had to use other sources of funding than their members. “The demand for credit is high, but the savings culture is poor,” laments an officer at a Ugandan SACCO.
In Uganda the greatest danger has come from politicians bearing gifts. In 2005 the government promised “a SACCO in every sub-county”, backed up with donations and cheap credit. Local bigshots hastily formed co-ops to get their hands on the money. Members saw loans as a handout from the ruling party and made little effort to repay. When the cash ran out, SACCOs failed. “They were a bit political,” sighs James Lubambo, an official in Iganga district, reeling off the names of 11 local SACCOs that have recently collapsed.
Indeed, the state of SACCOs often reflects a country’s politics. After a poor showing in Kampala in last year’s elections, Yoweri Museveni, Uganda’s president, has personally delivered 100m shilling ($28,000) cheques to SACCOs in the city. In Rwanda, by contrast, an efficient but overbearing government has built a successful SACCO sector from scratch—even if a quarter of members felt obliged to join out of a sense of civic duty, according to one survey.
There are better ways for governments to help. One is by plugging the yawning gaps in regulation, which in some countries bundles SACCOs together with other, non-financial co-operatives. Occasional tales of failure and fraud also do little for public confidence. In 2010 Kenya created a new regulator for the largest “deposit-taking” SACCOs: it is gradually enforcing capital requirements, but remains hugely under-resourced. Uganda brought in a new set of rules on July 1st, after more than a decade of discussion. It is also running a seven-year project which, among other things, will train leaders in small rural SACCOs to manage savings and credit better.
There are other challenges. Kenyan SACCOs face a squeeze as a rate cap on bank loans intensifies competition for the most creditworthy borrowers. And they will need to adapt to mobile banking, which is helping banks reach customers that SACCOs could once keep to themselves. But the co-operative model remains distinctive. Mr Biegon doubts that a bank would have financed his roof repairs. The SACCO, he says, is “our hope”.