African SACCOs tap fintech to spur growth

By Seth Onyango, bird

For decades, credit unions have extended small instalment loans and lines of credit to millions of African households. The sector is now adopting digital solutions to power its next level of growth and boost financial inclusion on the continent.

From table banking to credit unions, the savings and credit cooperative organisation (SACCO) sector in Africa is fast digitising to bring financial inclusion to the last mile.

Recently, Kenyan fintech Kwara – designed to help credit unions in the East African state shift to digital platforms – raised $4 million in a seed round from Breega and the SoftBank Vision Fund, to build a neobank for SACCOs.

Kenya National Police DT SACCO national chairman David Mategwa is now upbeat that such tech innovation will give more underserved consumers access to a suite of financial services that would have been otherwise unavailable, or difficult to obtain, such as credit, savings and pension.

While mobile money transfer solutions like M-PESA are already facilitating paperless transactions, Mategwa notes that smartphone apps provide a wider range of services.

“Members of a SACCO in far-flung areas are now able to transact without needing to visit a physical branch,” he told bird.

It is on that premise that he pushed for the launch of the organisation’s M-Tawi app which enables people to open a savings account, get a loan and pay bills.

According to Mategwa, the virtual branch (M-Tawi) is now the most active branch used by its members across the country.

He is hoping that similar adoption of mobile technology by SACCOs in Africa will also lead to greater transparency and financial hygiene of most credit unions.

Mategwa hopes tech innovations will also help more Africans in the diaspora to join SACCOs back home – and use it to invest in the property market, their most preferred venture.

He said that tech has also made SACCOs more attractive to individuals who traditionally used commercial banks to mobilise funds for investment since the former offer good rates.

With Kenya’s Kwara neobank app, individuals will be able to sign up with their preferred credit unions to access various financial services on the go.

“Kwara provides omnichannel ways for members of a SACCO to transact – web apps, Android, iOS and critically USSD that is simple, well understood from mobile money use and does not require a smartphone. We will continue to ensure as many features as possible are available to all members of a SACCO,” Cynthia Wandia, Kwara co-founder and CEO, told Ventures Africa.

Nigeria’s fintech start-up Xend Finance is also applying decentralised finance (DeFi) to credit unions in a bid to optimise operations and provide better yields.

Meanwhile, Mategwa a former cop and one of Africa’s most sought-after credit union leaders are pushing for the revival of the continent’s SACCOs as the panacea for financial inclusion.

Mategwa is credited with helping set up the national police SACCOs of Malawi and Ghana, as well as cooperatives societies for the military of Zambia, Eswatini and streamlining the operations of the Ngome SACCO for the Tanzanian military and police.

Earlier in 2021, he met on the sidelines of the Western Block Regional Forum in Monrovia with Liberia’s vice president Jewel Taylor to discuss ways of building a SACCO for Liberian women, as it emerged most of them prefer to lock cash in safes at home.

He is also having discussions with authorities in Sierra Leone to set up a similar outfit.

Credit union profits return to members, who are shareholders, enabling these institutions to offer lower rates on loans, including mortgages, and higher yields on savings products.

“By joining a SACCO you own the institution and at the same time, you are a customer. In case you make any surplus, it is ploughed back into membership. So it is a model that will improve the financial well-being of the people of Africa. Unlike commercial banks which make a profit and only plough it back to shareholders,” he said.

Mategwa and his team helped Kenya’s police SACCO become a savings and credit cooperative behemoth, with over 67,000 members and an asset base of $390 million (Ksh. 44 billion) as of 2020.

It is now the second-largest SACCO in Kenya based on assets and is third in terms of membership. Some 100 people join the SACCO each week, making it one of the fastest-growing credit unions in Kenya.

According to Statista, as of 2019, the number of credit unions in Africa and Asia was markedly higher than in other regions of the world, accounting for almost 90% of the total number of credit unions worldwide.

As of 2019, there were around 39,600 credit unions in Africa and around 33,600 in Asia.