How SACCOs can proceed with product and service development and delivery

MADISON, WI (April 20, 2020) — In the wake of COVID-19 pandemic and its devastating effect on the economy of Africa, Savings and Credit Cooperatives (SACCOs) in Kenya are going to face their greatest challenge in the area of product and service development and delivery.

It is therefore important for the SACCO leaders and managers to understand the macroeconomic environment to develop and deliver products and services that will keep them afloat. That understanding should be in the economic and social sectors, which include factors like exchange rates, diaspora remittances, current monetary policy and client behavioural change.

Economic sectors and level of COVID-19 effects

The COVID-19 pandemic is having a significant impact on the Kenyan economy and related sectors. For SACCOs to remain solvent, minimize risk, and ensure proper asset and liability management, it is critical they develop and deliver products and services that allow them to maintain a high-level of liquidity.

Below is a brief analysis of key sectors and how they have been affected by the COVID-19 pandemic, and how likely they are to affect SACCOs’ portfolios both individually and collectively. This depends on how SACCO managers approach product offerings to members drawn from these sectors. The lower the impact on the sector, the lower the financial risk for the SACCO serving the members in that sector.

Agricultural Sector: Highly impacted. There is freezing of export orders on horticultural produce to China. There are also reduced exports to Europe and the Middle East due to reduced orders from consumers. This has significantly led to a 46% drop in horticultural exports. In retrospect, a reduction in air freight volume and the cancellation of shipping vessels has aggravated the situation, leading to a high drop in export volumes. 

Tourism Sector: Highly impacted. The sector contributed approximately 1.3% to Kenya’s GDP in third quarter 2019. It will suffer due to lockdowns in the major economies of Europe and Asia where most tourists originate. The lockdowns have seen a reduction in revenues to the aviation industry, which is a major contributor to the sector. The cancellation of business-related travel, meetings, conferences, exhibitions and bans on public gatherings are also expected to have an adverse effect on the hospitality industry so closely linked to tourism.

Manufacturing SectorHighly impacted. There is a shortage of intermediate goods from China used to manufacture products. There is also an increase in the prices of imported raw materials used for food processing and other processes. With the increase in exchange rate volatility, there will be more pressure on the exchange rate as local importers look for alternative import markets, which may be more expensive. Failure to get raw materials will have adverse effects on the manufacturing sector, leading to staff rationalization and loss of income. SACCOs should therefore take precaution on underwriting loans from members in this sector.

Health Sector: Highly impacted. The health sector has had to increase its spending and direct funding towards public sensitization, increase the buying of essential equipment that is easily available and increase its training of medical personnel. The government will have to increase its fiscal spending to ensure hospitals are well equipped to deal with the pandemic. The fiscal deficit is therefore likely to increase, but staff and health facilities will be busy and overstretched.

Wholesale and retail sector: Moderately impacted. Imports from China account for an estimated 21% of the country’s imports. Therefore, supply chain disruption and uncertainty may affect this sector due to delays in imports that reduce customer confidence. Due to high pressure on the dollar from merchandise importers and a resulting exchange rate depreciation, there is a likelihood of supply shortages, which may eventually lead to dysfunction in this sector.

Construction and professional sectors: Low impact. However, the industry is facing delays in equipment delivery from China—the main import market. This may cause a slowdown in the growth of the construction sector. There are also delays in payments and decision-making, especially from Chinese-affiliated projects, clients and businesses that are affected by the slowdown in economic activity and reduced funding from financial institutions. Moreover, project postponements by the Government of Kenya are impacting on revenues in the industry

SACCO Measures on Product Offerings

SACCOs in the financial and insurance sector are still being moderately hit by the pandemic so far, but this situation may change. The SACCOs may need to support their members and clients in:

  • The health sector due to increased business, but should review loans to members who may channel it to health care.
  • Food systems—especially grains and cereals, rots and tubers, fish, meat, dairy and poultry due to increased demand for food stuffs.

However, SACCOs should be more cautious on lending to businesses (in manufacturing and wholesale/retail sectors) that rely on imports and exports, which present a high risk of credit default due liquidity challenges. The Non-Performing Loans will increase if the pandemic persists.

SACCOs should also be cautious with loans to members and clients in the:

  • Tourism and horticulture sector who have been sent home and imminently face job and income loss.
  • Construction and professional sector who will experience delays in earnings.

Furthermore, SACCOs (especially the Diaspora SACCO Societies) should be cautious on loan services from diaspora remittances. The Migration and Development report of 2019 indicated that diaspora remittances to Kenya rose from US$1.962 billion in 2017 to US$2.855 billion in 2019, an increase equivalent to 2.9% of country’s GDP.

As outward remittances decline in tandem with the nominal GDP (in US dollar terms) of the source countries, the COVID-19 pandemic would result in a decline of diaspora remittances due to reduction in disposable income. Central Bank of Kenya’s monthly statistics on diaspora remittances indicate a decline of 15.6% from US$259.4 million to US$219.0 million between January and February 2020. This, coupled with increased prices of household items in places like Europe and North America, is likely to lead to a further reduction in remittances in 2020.

On a positive note, this is the time SACCOs should leverage digital technology to roll out and drive products such as M-Banking, where members can complete loan and savings’ transactions online. This will ensure that SACCOs remain afloat, due to guaranteed and increased liquidity, as well as client retention.

SACCOs should also adopt messaging services to communicate and educate their members on COVID-19 measures, and to promote their products. This will enhance member and client loyalty.

About World Council of Credit Unions

World Council of Credit Unions is the global trade association and development platform for credit unions. World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions' financial performance and increase their outreach. World Council has implemented 300+ technical assistance programs in 90 countries. Worldwide, 82,758 credit unions in 97 countries serve 404 million people. Learn more about World Council's impact around the world at


Greg Neumann
Phone: +1 608-395-2048

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