AFRACA TECHNICAL WORKSHOP

1. AFRACA TECHNICAL WORKSHOP 26TH NOVEMBER 2008

2. THEME “INNOVATIONS IN ADDRESSING RURAL FINANCE CHALLENGES IN AFRICA”

3. TOPIC “THE EFFECTIVENESS OF THE SACCO MODEL, AS A FINANCIAL SERVICE PROVIDER”

4. PRESENTATION OUTLINE • The Kenyan Financial Market • The Co-operative Bank • Co-op Movement in Kenya • The Sacco Model • Challenges Faced by Saccos • The case for the Sacco Model • Innovation Case Study- “Sacco Link”

5. An overview of the Kenyan Financial Market

6. FACTS ABOUT BANKS • The financial system consists of Commercial banks, a development bank, development finance institutions, mortgage companies, building societies, finance companies, microfinance institutions, insurance companies and SACCOs. • Total Banks in Kenya- 43 • Total bank deposits – Kshs 705.2 b (Usd 8.8 b) • Total Loans and advances Kshs 951.2b(Usd 11.9 b) • Outreach is by 760 branches • Accounts held are 4.5 mln • Jobs 21,675

7. The Co-operative Bank of Kenya

8. FOUNDING PHILOSOPHY & VISION. • The Co-operative Bank of Kenya was formed by co-operators through their Co-operative societies in 1965 • To deliver financial services to the Co-operative Movement in general for maximum benefit of the societies’ members.

9. KEY FACTS ON THE BANK • 100% owned by the Co-operative movement. • Recently sold 19.3% of shares to the public through an Initial Public Offering(IPO) • The 4th largest bank in Kenya in terms of assets • Has 54 branches distributed countrywide & 152ATMs countrywide • Staff complement of 1,969 • Has a dedicated Co-operatives division to serve the co-operative movement

10. An overview of the Kenyan Co-operative Movement

11. STRUCTURE OF THE CO-OPERATIVE MOVEMENT IN KENYA APEX NATIONAL CO-OP ORGS NACOS SECONDARY CO-OPERATIVES (UNIONS) PRIMARY CO-OPERATIVES

12. STRUCTURE OF THE CO-OPERATIVE MOVEMENT IN KENYA • Primary Co-ops:- membership restricted to individual persons within a given locality • In Agriculture – agro processing & marketing – coffee, milk, sugarcane, livestock, fish etc • Financial Co-ops formed on basis of employment, commodity, trade, transport & community

13. STRUCTURE OF THE CO-OPERATIVE MOVEMENT IN KENYA • Secondary Co-ops(Unions):- membership restricted to primary co-operative societies • Serve as service agencies and operate on a district basis • Formed to enhance economies of scale through shared goods & services – bulk purchase of inputs & provision of members credit

14. STRUCTURE OF THE CO-OPERATIVE MOVEMENT IN KENYA • National Co-op Organisations: • Comprise Sec & Primary Co-ops • Offer specialised services to affiliates such as; • Commercial & financial services • Represent unions & societies at International levels

15. STRUCTURE OF THE CO-OPERATIVE MOVEMENT IN KENYA • Co-operative Bank - Finance • Co-op Insurance Co. – Insurance • Co-op Devt & Information Centre(CODIC) - ICT • Kenya Co-op Creameries – Dairy • Kenya Farmers Association – Cereals • Kenya Planters Co-op Union - Coffee • Kenya Rural Sacco Societies Union(KERUSSU) • Kenya Union of Savings & Credit Co-ops (KUSCCO) • National Co-operative Housing Union(NACHU)

16. STRUCTURE OF THE CO-OPERATIVE MOVEMENT IN KENYA • Apex – Kenya National Federation of Co-Co-operatives (KNFC) • Formed in 1964 to; • Be the spokesman for the movement • Custodian of Co-op principles • Promote Development of the movement • Promote collaboration both locally and internationally

17. FACTS ON THE CO-OPERATIVE MOVEMENT IN KENYA • The Co-operative movement is 100 years this year having started with Dairy Societies in 1908 • In Kenya we have 5000 registered Saccos i.e. 42% of total 12,000 Co-ops • The Movement has a membership of over 7 million making it the largest in Africa. It impacts directly and indirectly on 72% of Kenya’s population. • Saccos have mobilised over Ksh.150 billion (Usd 2.14 bln) in savings i.e. more than 30% of the National Domestic savings. • Loans amount to Ksh. 120 billion (Usd 1.5 bln)

18. FACTS ON THE CO-OPERATIVE MOVEMENT IN KENYA • The Sacco movement has evolved in the past 40 years into a formidable force for the social and economic transformation of Kenyan people. • In Kenya we have 5000 registered Saccos i.e. 42% of total 12,000 Co-ops • The Movement has a membership of over 7 million making it the largest in Africa. It impacts directly and indirectly on 72% of Kenya’s population. • Contribute to the direct employment of over 250,000 people and indirectly through establishement of linkages between firms, farms, market centres and provision for collective and individual investments.

19. FACTS ON SACCOS IN KENYA • Out of the 5000 Saccos 180 have FOSAs offering basis banking services across the country. • Saccos have mobilised over Ksh.150 billion (Usd 1.87 bln) in savings i.e. more than 30% of the National Domestic savings. • The FOSA accounts total 3.7 million which compares well with Banks accounts totalling Kshs 4.5 mln • The Ministry of Co-op Devt provides enabling policy, legal and institutional framework

20. The Sacco Model

21. THE SACCO MODEL SACCO PRINCIPLES & OBJECTIVES: • Voluntary coming together of people with a common goal and vision to achieve an economic objective/s. • Economic empowerment of members through pooling of members savings and availing affordable credit facilities and other related financial services to members • Member ownership and participation in the running of their Sacco.

22. AGM Supervisory Committee CMC General Manager BOSA FOSA THE SACCO MODEL AGM – ANNUAL GENERAL MEETING CMC – CENTRAL MANAGEMENT COMMITTEE BOSA – BACK OFFICE SERVICE ACTIVITY FOSA – FRONT OFFICE SERVICE ACTIVITY

23. Governance • Sacco Registered by MOCDM as per Co-ops Act • C. M. Committee elected at AGM • Sub-Committees elected appropriately • Accounts must be audited annually • Staff function headed by General Manager

24. BOSA PRODUC TS/SERVICES • Long Term Loan • Granted for Development purposes • Usually for a period of 24-48 Months • Interest rate is always 12% p.a. on a reducing balance • Amount limited by shares held and secured by Guarantor ship • There is a provision for top up after some repayment • Example is Development or Normal Loan • Some offer Group Lending usually for group size of 20-25

25. Services Provided at BOSA • Short Term Loan • Granted for emergency purposes • Interest rate is always 12% p.a. on a reducing balance • Amount limited by shares and secured by Guarantor ship • Examples are school fees and emergency loans

26. FOSA PRODUCTS/SERVICES • Deposit facilities • Fixed Deposit Accounts • Savings Accounts • Short/Call Deposit • Special Accounts e.g. Children, Holiday, Medical, School Fees etc

27. FOSA Services • Credit Facilities • Advances • Short Term loans • Emergency loans NB: Interest on advances can be as high as 5% per month.

28. FOSA Services • Other Services • Cheque clearing facilities • Bankers Cheques • Safe custody • Standing Orders • Salary processing • Foreign Exchange services - Moneygram • Electronic Funds Transfer • Sacco Link - ATMs

29. Major Challenges in Sacco Movement

30. CHALLENGES • Changing legal environment • Stiff Competition from MFIs and Banks • Members ever changing needs/demands • Frauds and Forgeries due to weak internal controls • Decline in membership • Deaths: Effects of HIV/AIDS • Withdrawals • Retirement

31. CHALLENGES • Employers apathy – Delayed check off remittances or none at all • Financial Management • Traditional products • Capitalization inadequacy • Information Technology • HIV and AIDS Scourge

32. CHALLENGES • Capacity to lend limited by deposits/shares • Lack of enough flexibility to meet member’s diverse credit needs due to lack of funds • Lack of speed in product/service delivery due to lengthy decision making procedures • Rigidity in pricing of loans. Not able to differentiate pricing between products/ customer segments

33. COMPETITOR ACTIVITY • Innovative products: • Automated Teller Machines (ATMS) • Centralized banking with a countrywide branch network • Single tariff Current accounts • Credit and Debit Cards • Low priced Bank cheques

34. COMPETITOR ACTIVITY • Innovative products: 6. International/local Money transfers 7. International Trade 8. Group lending by MFIs 9. Unsecured personal loans – 72 months, limits Kes 2 mln –((Usd 25,000) 10. Mobile Banking – Utility payments, Air time top up, Balance enquiry, Funds transfer, statement requests

35. COMPETITOR ACTIVITY • Commercial banks and MFIs put their customers first by practicing high level customer care • Adequate customer knowledge and needs assessment. • Recruitment of qualified staff. • Efficient operating procedures and use of ICT and office automation

36. THE CASE FOR THE SACCO MODEL • The Sacco model is still relevant in view of the following: • Member owned organisations – loyalty & pride • Low minimum requirements in account balance • Affordable products & services – low transaction costs. • Located in every corner of the country where other financial institutions have shied away from.

37. THE CASE FOR THE SACCO MODEL • Availability of cheap credit • Embraces all sectors of the community- teacher, farmer, civil servant, trader • Captive potential clientele of 7 mln members • Formed around economic activities thus cuts across all sectors of the economy • High savings potential • Good vehicle for financial deepening and economic development

38. WAY FORWARD • The model will however require improvement to keep up with changes in the financial market & serve their customers adequately; • Products:- alignment to member needs, revamp product features, develop new products, price products to match economic realities • Embrace Customer Focus – improve office layouts, training of staff/management, improve turnaround – embrace Service level agreement.

39. WAY FORWARD • Build institutional capacity – retention of profits to build up a strong capital base • Embrace Use of ICT fully – Efficiency, creation of a platform for IT based products • Embrace good governance – Adopt Performance management, recruitment and retention of qualified staff

40. WAY FORWARD • Improve internal procedures & controls – implementation/review of operational manuals, training, segregation of duties • Embrace Proper Liquidity management & explore new sources of funding – introduce savings products, increase minimum contributions • Member Education constantly • Identification of key strategic partners – Insurance, Training, Strategic Plans • Government continued involvement in policy, legal and institutional framework

41. AN INNOVATIVE FINANCIAL SOLUTION Case Study: SACCO LINK DEBIT CARD [ATM Services]

42. Sacco Link Debit Card ATM Services • The Bank has invested in a multi million project – The Co-opswitch project- which enables the issue of the - Sacco Link Debit Card – to individual members of the Saccos (Fosa customers) across the country. • The Sacco link service is an IT- based service that has taken Saccos to a complete new level in terms of sophistication and quality of service rendered to members. • Saccos pay for connectivity, upgrade of their software & a bridge to connect to the bank’s system

43. Sacco Link Debit Card ATM Services • Sacco link is uniquely designed to enable FOSAs get real time, online banking connectivity to Co-operative Bank • Sacco link card is visa based enabling Sacco members to enjoy convenience of using the card to buy goods and services at all shopping outlets that accept visa cards not just in Kenya but world wide. • We have so far connected 50 Saccos with a total of 400,000 active cards

44. CO-OPSWITCH Auth. Request Auth. Request Auth. Response Auth. Response SACCO Card holder @ Co-opbank ATM’s and Other Banks ATM’s

45. ATM SERVICES Cash Withdrawal Pin Change Mini Statements Balance Enquiry Utility payments

46. SACCO ATM CARD-DESIGN

47. ATM BENEFITS : SACCOS • Improve Service Delivery to members • Increase membership • Enable Saccos to remain competitive • Earn fee based income • Decongest banking halls • Increase service touch points • Save on capital expenditure • Bank the unbanked

48. Thank You