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Harsh economic conditions in 2023 caused surge in defaulter rate among many Saccos

Many Savings and Credit Cooperative Societies (Saccos) in the country witnessed a high default rate in 2023 owing to harsh economic conditions.

The rate of bad loans went up since a section of members with loans were unable to service them leaving Saccos with low cash flow.

Chief Executive Officer (CEO) of Amica Sacco James Mbui stated that in 2023 non-performing loans reached a significant 14.8 percent of gross loans reflecting the prevailing economic challenges.

Speaking during the Sacco’s annual general meeting held in Murang’a town, Mbui noted that during the year under review, the country’s financial sector faced headwinds with a surge in default rates affecting institutions across the republic.

He revealed cash flows of many Saccos were affected thus slowing down performance of many of the institutions.

The CEO explained that challenges that lingered in the form of weakened shilling prompted the Central Bank of Kenya to respond with a series of adjustments to lending base rate.

“Increase of lending base rate by the Central Bank saw the emergence of expensive loans thus reducing the number of those seeking loans from financial institutions.

“Amica Sacco, which has a large membership of farmers, was also affected as auctioning of coffee was delayed thus affecting the financial status of our members. We hope this year of 2024, there will be easing of some of the economic challenges in the country,” he noted.

The value of Kenyan shilling, Mbui noted, has displayed resilience and stability in the first quarter of 2024 thus showcasing a more robust economic position.

“With a focus on aggressive selling and a commitment to an exceptional customer experience, we remain poised to navigate these economic currents successfully,” Mbui told the Sacco’s delegates.

He continued, “With the hard economic times faced by our members, as a Sacco we adjusted loan repayment period to members who approached us for help”.

Mbui further highlighted that despite the harsh economic situation, the Sacco attracted 8, 815 new members in last year saying Share capital grew to Sh795.34 million from Sh715.28 million in 2022.

“Members’ total deposits increased from Sh4.89 billion in 2022 to Sh5.44 billion in 2023, while our loan book grew to Sh6.50 billion in 2023 from Sh5.39 billion in the previous year,” added the CEO.

Mbui underscored the adoption of digital banking saying the shift to mobile banking helped the Sacco to successfully harness its power to transform ways to serve members.

“We remain committed to enhancing the reliability and security of these digital channels to ensure our members’ funds are always protected,” he averred.

Mbui said the Sacco is currently working to digitize and automate credit processes thus simplifying lending procedures.

“Our current manual approach with human intervention in loan origination, appraisal and approval has proven to be less efficient and slower leading to potential inaccuracies and biases in the assessment. By transitioning to a fully system based process, we anticipate reducing the turnaround time for loan appraisal and approval. This will cut processing costs as applications will be done online,” stated the CEO.

By Bernard Munyao and Florence Kinyua

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