Unleashing Growth: Innovative Consumer Financial Services and Alternative Revenue Strategies for SACCOS

2. UN SACCO EDUCATION DAY & LAUNCH OF STRATEGIC PLAN 2015-2017 EMERGING REVENUE STREAMS FOR SACCOS

3. CONTENTS • Introduction • Innovative Consumer Financial Services • Alternative Revenue Strategies

4. SACCO’s Macro Environment Economy, political, legal system, regulations, population demographics, societal values and life styles and the effects of technology. These impact the movements industry’s competitive environment, which includes suppliers, substitute buyers, new financial entrants and rival financial providers. (The future will only be more competitive , do not believe in the blue ocean strategy – it is short lived.)

5. OVERVIEW • The growth in the economy has led to an increased role for financial institutions. Both trends are likely to continue resulting in openings to provide new financial services. • For financial providers, including SACCOs to understand and unlock the potential, there is an unparalleled set of opportunities to build long-term growth and superior shareholder value.

6. First, the most significant opportunities for financial services firms lie in consumer financial services. • Second, Competition in the financial services sector will continue to grow, requiring financial providers to create new business models in order to adapt. • SACCOs can greatly advance by adopting highly innovative approaches in service provision.

7. Innovation can help SACCOs overcome infrastructure limitations and address members’ needs through; • creative distribution models, • risk management practices and • partnerships. • Some institutions, for example, can disburse financing to small business customers within 10 minutes through electronic channels and without documentation or guarantor requirements • This presentation has a brief highlight on innovative consumer financial services but focuses more on alternative revenue sources.

8. Innovation can help SACCOs overcome infrastructure limitations and address members’ needs through; • creative distribution models, • risk management practices and • partnerships. • Some institutions, for example, can disburse financing to small business customers within 10 minutes through electronic channels and without documentation or guarantor requirements • This presentation has a brief highlight on innovative consumer financial services but focuses more on alternative revenue sources.

9. INNOVATIVE CONSUMER FINANCIAL SERVICES

10. Despite the country experiencing economic growth, consumer financial services have not caught up. Savings accounts, insurance, loans, payments, and similar offerings—where they do exist—penetrate unevenly and often reach only high income populations.

11. In the portfolio of the poor, three key services are greatly in demand but often inadequately provided: • managing money on a daily basis, • building long-term savings, and • borrowing for various needs

12. How can SACCOs enhance consumer financial services? • By exploiting existing infrastructure and capabilities. Exploring partnership models to expand outreach to target members with minimal capital expenditure. • By enhancing distribution channels. Developing cost-effective models to build and expand channels. • By delivering a balanced portfolio of services.

13. ALTERNATIVE REVENUE STRATEGIES

14. Innovative SACCOs can work actively and creatively to eliminate barriers to financial access by; • Using transaction information and psychometric testing to develop credit risk-assessment tools and benchmarks. • Adapting POS electronic networks to approve and deliver financial services.

15. In addition, the following strategies can be adopted to enhance revenue growth; • Optimizing product offerings, • Enhancing fee collection efficiency, • Optimizing service pricing, • Introducing new products and services, • Entering or expanding markets, and • Enhancing sales and marketing effectiveness.

16. OPTIMIZE PRODUCT OFFERINGS Deposit-taking SACCOs can restructure existing deposit products and services to grow revenue. The key to developing the most effective product and market strategies is developing an understanding of the Sacco’s customers. Who are they demographically? What services do they use? What payment options do they prefer? How profitable are they?

17. OPTIMIZE PRODUCT OFFERINGS Using members/clients data from core systems, SACCOs should first build a detailed customer‐level database of service usage and payment/deposit activity. They should also leverage external demographic to better understand individual customer buying and product usage propensities.

18. ENHANCE FEE COLLECTION EFFICIENCY Focusing on the areas surrounding fee collection can yield significant increase in revenue and margin improvement. Experts on fee collection efforts should know where to look for improvements − in areas such as account analysis practices and policies, special fees on depository and branch services, and collection effectiveness. This exercise starts with an assessment of all fees/charges. The findings are then compared to fees common in financial institutions of similar size and background.

19. OPTIMIZE SERVICE PRICING (VALUE Pricing analysts should look to align service fees to both enhance income and improve a SACCOs’ competitive position. Treasury management and commercial services can be analysed and value priced to ensure maximum revenue contribution. Although the concept of value pricing is not new in banking, many institutions opt first for competitive, cost‐based pricing tactics. SACCOs can price select services based on the customer’s perception of value.

20. INTRODUCE NEW PRODUCTS AND SERVICES • With the introduction of new value‐added products and services, SACCOs can both grow fee income and position themselves as leaders and innovators in their markets. • SACCOs need to understand their market dynamics and also have access to a wide inventory of income‐generating products, including offerings such as:

21. INTRODUCE NEW PRODUCTS AND SERVICES • With the introduction of new value‐added products and services, SACCOs can both grow fee income and position themselves as leaders and innovators in their markets. • SACCOs need to understand their market dynamics and also have access to a wide inventory of income‐generating products, including offerings such as: • Expedited payments • Mobile wallet • P2P payments • Agency banking services – Utility payments, tax payment • Short term instant loans using technologies like mobile money transfer • Emerging money transfer services i.e. account to account transfers

22. ENTER NEW OR EXPANDED MARKETS SACCOS can enter into new markets as well as expand current markets and business lines in order to increase revenue. Consider evaluating and implementing in areas of opportunities such as treasury management expansion and debit card loyalty programs. A Sacco should also evaluate the market opportunities for the un‐banked and under‐banked within their market area.

23. ENTER NEW OR EXPANDED MARKETS In addition, market potential can be measured and matched with appropriate incentive plans to help drive additional revenue opportunities specifically in the branch network. For each branch office, identify the gaps between the expected market demand and the current share for key SACCOs products and services. The analysis will provide a solid and objective basis for establishing both short‐ and long‐range sales goals for each office.   

24. ENHANCE SALES AND MARKETING EFFECTIVENESS SACCOs should also look to increase cross-selling performance and gaining a greater share of the customers’ wallets. With improvements to the sales process, optimization of marketing technologies and training of customer facing staff, revenue gains can be realised through sales and marketing efficiencies, social media strategies and product adoption marketing.

25. We operate where mainstream financial institutions behave as hawks against a tortoise. It is important to do analysis of the financial industry.

26. Laws That Guide Investments • Section 45 of the Co-operative Societies Act. • SACCO Act Sec. 15 (1) (c) (d) – limits the level of investment in enterprise capital. • Sec. 48 (1) of SACCO Act limits investments in non earning assets in excess of 10% of total assets (land & building) = 5%.

27. How To Win Members To Support • Branding and image building strategy; • Governance/prudential management

28. Other Revenue Streams Inter SACCO lending/borrowing as per Sec. 33 of SACCO Act.

29. How Do We Get Around This? • Register an investment arm as a subsidiary; • Seek approval from SASRA.

30. THANK YOU HEAD OFFICE KUSCCO Centre, Upper Hill, Kilimanjaro Avenue, P.O. Box 28403 - 00200, Nairobi, Tel: (020) 2730191, 2722927 Fax (020) 2721274, Email: info@kuscco.com NAIROBI REGIONAL OFFICE KUSCCO Centre, Upper Hill, P.O. Box 28403 - 00200, Nairobi, Tel: (020) 2722853, Email: admin.nairobi@kuscco.com COAST REGIONAL OFFICE Kitumbo Road, P.O. Box 85113 - 80100, Mombasa, Tel: (041) 2311465 / (020) 2352927, Email: admin.coast@kuscco.com WESTERN KENYA REGIONAL OFFICE Kenya Re Plaza, 5th Floor, P.O. Box 193, Kisumu, Tel: (057) 2024563, Email: admin.western@kuscco.com. RIFT VALLEY REGIONAL OFFICE AFC House, 2nd floor West Wing, P.O. Box 2077, Nakuru, Tel: (051) 2211362, Email: admin.riftvalley@kuscco.com MT. KENYA REGIONAL OFFICE Mugo and Gatungo Building, 2nd Floor, (Bata Hse), P.O. Box 1143, Embu, Tel: (068) 31698, Email: admin.mtkenya@kuscco.com