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Issue 00498 |
December 8 - 14, 2007 |
issn 0856 - 9135 |
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Talking Business |
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How Saccos are giving commercial banks a good run for their money by Vincent Obiro Orute Who between Saccos and commercial banks is encroaching on another’s business? This is one of the questions most bank managers in Africa have had to deal with in the past few years. This is primarily because the line separating Saccos and commercial banks is increasingly getting blurred as the scramble for customers becomes more intense than ever before. In fact, it is very difficult if not impossible for one to draw a line between commercial banks and Saccos since their operations are getting similar by the day as the two make inroads into each other’s territory (turf). Although Saccos are facing major challenges due to the fact that major commercial banks in town have paraded or lined up products and services similar to those offered by them, I must confess that Saccos have really dug into major commercial bank’s territories, thus denying them business that used to be exclusively theirs. And for most African countries where Saccos have been charged to weather mounting competition from leading commercial banks, they now have leeway to introduce an array of products and services akin to those being offered by major commercial banks thus making them cast their nets wider. Among the products and services that Saccos are offering hence entering what has been the exclusive domain of commercial banks are; front office savings activities (FOSA), fixed deposit accounts, current accounts, Automated Teller Machines ( ATMs), international money transfers, and e- banking. And for a country like Kenya with more than 5,000 Saccos commanding total deposits in excess of Ksh98 billion, it means Saccos are giving commercial banks some good run for their money. In fact, most of would be bank clients (customers) in Kenya are torn between opening an account in a commercial bank or in a Sacco. Again it is not only Saccos that major commercial banks in Africa have to worry about, there are dozens of microfinance institutions, hire- purchase firms, as well as informal money lenders popularly known as shylocks and merry -go rounds who are other sources of worry for major commercial banks. But why are commercial banks losing business that used to be exclusively theirs? There are numerous reasons to explain this sad state of affairs. First, surpluses made by Saccos are distributed to members as dividends, whereas profits made by commercial banks are paid to shareholders. Second, the minimum deposit required to open a savings account in a Sacco is far less compared to what most commercial banks charge. With only $50.00 or less one can confidently walk into a Sacco and open a savings account at the strike of a pen. One can also walk into a Sacco, apply for a loan and the same is approved within days regardless of whether he or she has collateral or not. Third, co- operatives are more flexible than commercial banks. For instance, you do not need a letter of reference to open a savings account in a Sacco. All you need to have is an ID card and a minimum opening balance which in most cases is something as little as $20.00 or even less. Fourth, members of a sacco are treated as owners of the their sacco, unlike commercial banks that treat their account holders as mere customers who do not own the bank in question. Fifth, membership in Saccos is open and voluntary. There are no artificial restrictions imposed on membership which might exclude persons who would otherwise be qualified as members. But whereas the boundary between Saccos and commercial banks is increasingly becoming narrow, concerns are being raised over the safety of customer deposits in the event that the Sacco goes under. Clearly, Saccos need to be regulated in order to protect customer deposits.
Vincent Obiro Orute is director of operations, Volunteer Network Africa,
Website:
www.volunteernetworkafrica.org |
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Vincent
Obiro Orute 