Unlocking the Future: Empowering SACCOs to Thrive in Kenya's Remittance Market

Savings and Credit Cooperative Organizations (SACCOs) in Kenya are set to become key players in the remittance sector, which is essential for the country's economy. The SACCO Societies Regulatory Authority SASRA Annual Report 2023 highlights significant growth in SACCO membership and loan portfolios, indicating their increasing influence and further growth in Kenya. However, to fully realize their potential, SACCOs should build their capability to continue mobilizing more deposits. In addition, by effectively tapping into the diaspora remittance market, SACCOs can drive financial inclusion, transforming financial access for millions of Kenyans.

A recent study by FSD Kenya, in partnership with International Fund for Agricultural Development in East Africa (IFAD) and Sacco Societies Regulatory Authority (SASRA), highlights the opportunities and challenges faced by SACCOs as international remittance providers. In this article, we explore key findings and discuss how BDO East Africa can support SACCOs in unlocking their full potential.

Key Findings of the Study

1. Growing Significance of Remittances

Remittance inflows to Kenya have become a key pillar of economic stability, significantly contributing to foreign exchange reserves. However, the role of SACCOs in this sector remains limited. The stringent requirements set by the CBK are often challenging for SACCOs to meet. Only 22% of the SACCOs surveyed currently offer inward remittance services, primarily through indirect partnerships with banks or as sub-agents to Money Transfer Operators (MTOs). This presents an opportunity for SACCOs to enhance their data strategies to better integrate with MTOs.

2. Barriers to Direct Participation in Remittances

The existing regulatory framework restricts SACCOs from becoming direct payment service providers. In addition, many SACCOs face internal challenges such as limited technological infrastructure, compliance burden on deposit guarantee fund, and the lack of a compelling business case to invest in remittance services. These barriers hinder SACCOs from fully tapping into the remittance market.

3. Opportunities for Enhancing Diaspora Engagement

Although remittances are mainly used for family support, investments, and education, most diaspora members do not use SACCOs as their primary remittance channel. By addressing concerns around convenience and trust, SACCOs could capture a larger market share. There is a growing interest in SACCOs offering tailored remittance-linked products, such as savings accounts, loans, and investment services, which could serve as a gateway for deeper engagement with the diaspora community.

4. Proposed Strategic Directions for SACCOs

The study identifies several strategic measures SACCOs can adopt to become more prominent players in the remittance value chain. These include investing in digital platforms, forming strategic partnerships, and improving governance. A stronger digital infrastructure would enable

SACCOs to offer direct remittance services, while partnerships with banks and fintech companies could facilitate the development of innovative financial products.

BDO East Africa's Role in Strengthening SACCOs

Given the significant opportunities and challenges identified, BDO East Africa is well-positioned to support SACCOs in becoming key players in Kenya's remittance ecosystem. Here are some areas where BDO could add value:

1. Capacity Building and Strengthening

One of the most pressing needs for SACCOs is the enhancement of governance structures overall Sacco performance including Governance, staff capacity, systems understanding, marketing and promotion and more importantly internal controls. BDO’s expertise in financial auditing and risk management can be leveraged to help SACCOs establish robust systems that mitigate risks related to fraud, and internal controls, thereby enabling safer and more reliable remittance offerings.

2. Regulatory Advisory Services

Navigating the regulatory landscape is a significant hurdle for SACCOs aiming to enter the remittance market. BDO can provide advisory services to help SACCOs understand and comply with the necessary tax and legal requirements.

By engaging relevant stakeholders, BDO can also advocate policy changes, that support SACCOs' direct participation in the remittance sector, specifically in terms of tax incentives.

Additionally, BDO can assist SACCOs in understanding the implications of various remittance channels and product offerings. We can provide a robust framework that addresses the tax implications of cross-border transactions, streamlining SACCOs operations and facilitating engagement with international partners to expand their remittance service.

3. Data Quality and Digital Transformation

Adopting technology that enables efficient remittance handling is critical for SACCOs to remain competitive. BDO can guide SACCOs in implementing digital solutions such as mobile banking platforms, payment gateways, and shared services models that would enhance operational efficiency and reduce transaction costs. The shared service models will incorporate digital frameworks that support mobile wallets, ensuring centralized control and security for the SACCOs.

4. Overseas support to representative offices and local compliance in those countries.

While Saccos desire to build partnerships in many different countries and with dominant MTOs in those areas, many of them lack visibility and trust from those kind of partners. Some of the countries also have stringent controls on how money can be transferred and the local compliance of entities become pivotal. With a critical mass and resources, BDO could provide that pivot to bridge the gap in trust by providing regulatory compliance to broader outreach by the Saccos.

5. Promotion of local Technology to support aggregated Sacco needs in Kenya.

One of the key challenges affecting the proper functioning of the Sacco is technology limitations. BDO can lead the establishment of a tailored technology solution designed to bridge this gap. These solutions are developed to align with Central Bank of Kenya (CBK) and the Sacco Societies Regulatory Authority (SASRA) regulations.

Our solutions are forged in collaboration with the local apex Sacco union, ensuring compliance and effectiveness, aligning seamlessly with requirements and guidelines. This expertise enables us to guide Saccos in adopting compliant, effective, and innovative technologies tailored to their unique needs while navigating the complexities of regulatory adherence. To achieve this significant milestone, development funds will be required, alongside a sustainable business model where Saccos contribute through a pay-as-you-use approach. This will enable continuous improvements and ensure the technology remains self-sustaining without relying on donor support

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The remittance market in Kenya offers a significant opportunity for SACCOs to enhance their service offerings and promote financial inclusion. By addressing existing challenges, SACCOs can become vital players in this sector. As a leading advisory firm in the region, BDO East Africa can play a crucial role in overcoming these barriers by supporting SACCOs in building capacity, navigating regulations, adopting technology, and forming strategic partnerships looking at been enablers in the sector. By working together we can unlock the potential of remittances to drive economic growth and empower communities across Kenya.