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A Savings And Credit Cooperative Economics Essay

The inception of SASRA in October, 2009 made it a requirement for SACCOs in Kenya to acquire licenses in order to be take deposits. Since then, there has been a steady increase in the number of deposit taking SACCOs in Kenya seeking licensing with already licensed and operational SACCOs growing in terms of membership, deposits, total assets, gross turnover, loans granted, and equity (SASRA, 2011, p. 25). A total of 570 SACCOs were registered between 2009 and 2010 increasing total registered and operational deposit taking SACCOs to 3,632.

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SACCOs are increasingly allowing persons who were not in the original bond to become members. This is to respond to competition and ensure sustainability as the traditional market shrinks. For example rural farmer based SACCOs are rebranding to position themselves as a national SACCOs so as to attract non farmers such as business persons and employed persons (SASRA, 2010).

A Savings and Credit Cooperative (SACCO) is one “that pools savings for its members providing them with credit facilities” (UN-HABITAT, 2010). The general objective of SACCO is to promote the economic interests and general welfare of its members. They are formed based on a common bond which could be economic activity, geographical location or employment.

The ICA Statement on the Co-operative Identity defines a cooperative as “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise”.

Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. Co-operative members believe in the ethical values of honesty, openness, social responsibility, and caring for others (Bibby & Shaw, 2005).

The 1995 ICA Congress also reformulated seven principles of co-operatives.

In summary, they are:

Voluntary and open membership

Democratic member control

Member economic participation

Autonomy and independence

Education, training and information

Co-operation among co-operatives

Concern for the community

Different SACCOs provide a number of products which include but are not limited to credit services, deposit and savings facility, cheque clearing, bankers’ cheques, standing orders, safe custody, and salary advances.

History of SACCOs

The pioneers of modern cooperation emerged in working- class environments in European Industrial cities of the 19th Century. In the 1840s,the first to industrialize countries (Great Britain and France),pioneers of co-operative invented models of the consumer cooperative and the labor cooperative to defend and promote the interests of working-class families in the face of the social disasters caused by industrial revolution.

The second generation of the pioneers of modern cooperation emerged, in certain European rural environments in the late 19th century. In the 1860s, these pioneers created the models of agricultural cooperatives and savings and credit cooperatives inspired by the success of the consumer cooperatives formula in Great Britain and based on old traditions of rural solidarity aimed to meet the primary economic needs, which went unsatisfied. Agricultural cooperatives then enabled families of farmers and livestock raisers to organize their own supply systems of agricultural inputs and market their products and no longer depended on merchants and businessmen in the cities. The SACCO helped them to stop depending on moneylenders and to find the credit necessary to modernize their agricultural cooperatives (Mwakajumilo, 2011) .

SACCOs in Africa

In Africa, the idea was brought by a Roman Catholic priest, in Jirapa, a town in Ghana, in 1955. Father John McNulty from Ireland had studied in Canada where he learnt about savings and credit co-operative societies.

Father McNulty helped the Jirapa villagers to form a Savings and Credit Co-operative. The co-operative assisted the members to address their financial problems which they couldn’t individually. Father McNulty trained about 60 people, who were the first successful savings and credit co-operative pioneers on the African continent.

The success of Jirapa savings and credit co-operative spread throughout Ghana and by 1968, the savings and credit co-operatives throughout the country came together to form the Credit Union of Ghana , which was set up to promote, organize, service and co-ordinate the activities of savings and credit co-operative in Ghana. (Alila & Obado, 1990).

According to the World Council of Credit Unions (WOCCU) 2011 statistical report, there are 51,013 credit unions in the world, having a total of 196,498,738 members and a total penetration of 7.8% penetration rate which is calculated by dividing the total number of reported credit union members by the economically active population age between 15-64 years old (WOCCU, 2012).

The largest markets in Africa by number of members as of December 31st 2011 are Kenya (4,183,220), Senegal (2,231,117), Ivory Coast (1,705,712), and Benin (1,597,233) (WOCCU, 2012).

SACCOs in Kenya

SACCOs in Kenya are “currently among the leading sources of the co-operative credit for socio-economic development” (Alila & Obado, 1990).Cooperatives in Kenya were started in 1908 and membership was limited to white colonial settlers. The first cooperative was established at Lumbwa, present day Kipkelion area. In 1944 colonial officers allowed Africans to form and join cooperatives (Gamba & Komo, 2012).

The initial attempt to encourage African farming co-operatives was initiated by the need to implement the recommendations of the ‘Swynnerton Plan’ of 1953. The Swynnerton Plan was formulated to improve African farming, specifically the growing of cash crops and is recorded to have encouraged the progress and growth of African cooperatives (Alila & Obado, 1990).

It was at this point that the recommendation that a registrar of cooperatives be appointed was made. In 1945, a new Cooperative Societies Ordinance was enacted which allowed African participation in the cooperative movement. In 1946, a department of cooperatives was established and a registrar of cooperatives appointed. By 1950 most colonial civil servants began to support and encourage the development of cooperatives and by 1952, about 160 cooperatives had been registered (Alila & Obado, 1990).

The post-independence era saw the rapid increase the in number of producer organizations and consolidation of the ones that already existed. At this time, the government saw the cooperative movement as a means for African socialism, and strengthening common ties between the people from different regions of Kenya. In 1963 there were about 1000 cooperatives, which rapidly grew in number since then.

Today, the co-operatives are an integral part of the Government economic strategy aimed at creating income generating opportunities particularly in the rural areas. The co-operative movement has been recognized by the Government as a vital institution for the mobilization of human and material resources for various development progress particularly in the rural areas where the majority of people reside, earning their livelihood mainly from agriculture.

The co-operative movement now contributes well over 45 per cent of Kenya’s GDP and it is estimated that at least one out of every two Kenyans directly or indirectly derives his/her livelihood from the co-operative movement. Over the years, the co-operative movement remained predominantly agriculturally oriented. However, in the recent past, the co-operative movement has experienced significant diversification in activities and interests notably savings and credit. Other non-agro-based co-operatives have also emerged and ventured into areas such as housing; “Jua-Kali”, building and construction, handicrafts, transport, small scale industries, etc. (Alila & Obado, 1990).

SACCOs are one of the leading sources of rural finance and in many rural areas the local SACCO is the only provider of financial services. While the exact number of SACCOs operating in Kenya is not known, estimates range from almost 4,000 up to 5,000 (Financial Sector Deepening (FSD), 2010). SACCOs make up over 50% of all cooperatives and as financial institutions are important in the role of financial intermediation in Kenya’s economy focusing on personal development, small and micro enterprise sectors of the economy (SASRA, 2010).

Types of SACCOs in Kenya

According to the SASRA 2011 Supervision Report, there are two main types of SACCOs in Kenya; Deposit Taking and Non-Deposit Taking. Deposit Taking SACCO are licensed by SASRA while non-Deposit Taking SACCO by the Commissioner for Co-operatives (SASRA, 2011, p. 18).

FSD Kenya groups SACCOs as Urban, Rural, Employer-Based, Agricultural, Public Sector, and Size. Urban SACCOs have a large loan portfolio and are headquartered in Nairobi while Rural SACCOs are among the smallest in the industry, are found in villages or towns and are sustained mainly by agriculture. Employer-based SACCOs are those created for employees of a certain organization. Grouping by size can be either by number of branches or total assets (FSD Kenya, 2010).

Deposit Taking SACCOs

In the early 1990s, difficult economic times meant that commercial banks had to demand a higher minimum operating balance for individual accounts in order to sustain their business. SACCOs became popular among employed persons who had were unable to maintain bank accounts seeing as maintaining a bank account was becoming more expensive. They responded by introducing a Front Office Service Activity (FOSA) which offered bank like services at competitive rates opening a new chapter in the SACCO business (SASRA, 2010). A Deposit Taking Sacco (D.T Sacco) is one that operates a front office savings activity (FOSA).

Deposit taking(D.T) SACCOs are spread across the country and are distributed as; Government based SACCOs that comprise members from ministries and Government agencies, public schools and local authority employees, Farmer based SACCOs that comprise farmers in different agriculture activities, Private institution based SACCOs that draw members from employees of private enterprises including NGOs operating in Kenya, and Community based SACCOs that have members from the local communities where they operate and include SME traders, farmers, transport based and church based SACCO (SASRA, 2011, p. 20).

Table Ownership and Categories of licensed D.T SACCO as at 13 December,2011.

Source SASRA 2011 SACCO Supervision Report

Problem Statement

SACCOs provide a wide range of products, offer quasi banking services at a cheaper rate than commercial banks, provide higher interest on savings and according to a study by FinAccess, a significant percentage of the Kenyan population is unbanked (FinAccess, 2009). This recent study by the Financial Sector Deepening Trust (FSDT) revealed that banks serve 14.2 percent, SACCOs 13.1 percent and MFIs 1.7 percent of the population respectively. This is a big opportunity for SACCOs given that there is an untapped market.

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Since SACCOs do not raise equity mainly from outside sources, their strength lies in numbers i.e. the more the members, the better it is for the SACCOs because this means that higher capital is raised. Additionally, the SACCO subsector is the fastest growing within the Cooperative sector making over 50% of the registered cooperative societies (SASRA, 2010, p. 10). This study seeks to find out how SACCOs are tapping into this ready market, rapidly growing, the methods they are using to do this and their effectiveness in reaching this market

Purpose Statement

The purpose of this study is to examine the growth strategies employed by Deposit Taking SACCOs in Kenya.

Objectives of the study

To identify the growth strategies employed by Deposit Taking SACCOs in Kenya.

To examine the implementation of expansion methods employed by Deposit Taking SACCOs in Kenya.

To determine the short falls of the growth strategies employed by Deposit Taking SACCOs in Kenya.

Research Questions

What are the growth strategies employed by Deposit Taking SACCOs in Kenya?

How are the growth strategies employed by Deposit Taking SACCOs in Kenya implemented?

What are the short falls/gaps of the growth strategies employed Deposit Taking SACCOs in Kenya?

Justification of the study

SACCOs contribute significantly to employment, the national economy, poverty eradication creation of wealth and new financial services to its members (Mwakajumilo, 2011). Because D.Ts provide banking facilities at a cheaper rate they have a significant role in the shaping of any economy. For example, financing Small and Micro Enterprises (SMEs) that are the heart of the Kenyan economic and commercial activities. In order to do this they need to be sustainable by adopting strategies that will foster growth in any shape or form. The results of this study can be adopted by D.Ts in order to apply best practice when it comes to development and adoption of growth strategies.

Significance of the study

The results of this study will seek to benefit the Government, the ministries of Finance, and Cooperatives Development and Marketing in formulating policies concerning SACCOs and other financial institutions in order to improve banking and the financial services landscape in Kenya. Deposit Taking SACCOs will be able to identify those growth strategies that are effective and discard those that are not enabling them to boost membership, loan portfolio and total assets, and the penetration of financial services in Kenya. This study will also provide knowledge on how SACCOs are implementing their growth strategies to that can be used by various key parties that deal with and regulate SACCOs including SASRA and Commissioner for Cooperative Development


This study will be conducted under the following assumptions:

The respondents will provide needed information objectively and fully

All data provided by respondents will be correct and genuine

Scope of Study

This study will be carried out at Kingdom SACCO Limited and Wareng’ Teachers’ SACCO. Data will be collected from the top and middle level management and key staff at the headquarters of the SACCO in Githurai, Nairobi and Eldoret.

Limitations and Delimitations

Since this is a case study focused on a two SACCOs, the results of the study cannot be attributed to the whole SACCO sub sector as generally representative. The researcher also expects that there may be reluctance by the respondents to provide adequate accessibility of information since most businesses prefer to keep such data private. The researcher intends to seek full permission of the SACCO management to conduct this study in order to ensure full cooperation.


This chapter has outlined the problem and purpose statements, scope, purpose, objectives and justification of the study. It has also discussed the significance of the study, its expected limitations and assumptions during the study. The next chapter will cover the literature relevant to the study, outlining the theoretical and conceptual framework.

Definition of Terms


Back Office Services Activities. The branch of any SACCO that provides credit facilities to its members.


Deposit Taking


An arm of FSD Kenya. FinAccess has been established as the leading source of reliable data on financial access in Kenya and is widely cited in the media and by Government, the private sector and international development partners.


Front Office Services Activities. A service provided by SACCO that enables its members to deposit and withdraw cash from or into their accounts just like a bank.


The Kenya Financial Sector Deepening (FSD). A programme established to support the development of financial markets in Kenya as a means to stimulate wealth creation and reduce poverty.


International Co-operative Alliance. The ICA was established in 1895, and brings together over 230 affiliated bodies from more than a hundred countries. In total, the ICA represents an estimated 760 million co-operative members worldwide.


Non-Governmental Organization


Savings and Credit Cooperatives


The SACCO Societies Regulatory Authority, whose main mandate is to license ,supervise and regulate Deposit Taking SACCO in Kenya


Small and Micro Enterprises


The World Council of Credit Unions (WOCCU). Established in 1970 with a membership from credit unions and co-operative financial institutions in 100 Countries, which between them have over 196 million members.


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