Cooperative societies woo bank customers as interest rates soar
Savings and credit cooperative societies (Saccos) have begun a charm offensive for distressed loan borrowers by offering to buy out their commercial bank facilities.
The saccos are alerting members and other customers of the window to roll over the bank loans.
“Do you have a bank loan or more than one Sacco loan? Consolidate your loans today at only one percent per month,” read a recent advertorial by Safaricom Sacco.
In principle, a sacco will offer a customer a loan—usually of a higher value than the bank loan—where parts of the proceeds are deployed in clearing the bank facility.
The customer then earns new repayment terms with an often lower interest rate than the banking facility.
“Yes, we do buy loans from other financial institutions. We simply give you a loan and the customer uses part of that loan to clear their obligation to the other. This may come at a fee depending on each Sacco,” George Ochiri, CEO of Harambee Sacco, told the BDLife.
Unlike commercial banks, Saccos have not tinkered with interest rates on loans giving them the edge over peers in the financial sector.
The hold in interest rates on loans by Saccos has all to do with their relatively lower cost of funds given most of their funding is generated from members’ savings.
“We have retained our interest rates and this is not changing. Ideally, this is our money from our members and so our cost hasn’t changed in principle. The money belongs to us,” added Mr Ochiri.
In comparison, commercial banks incur higher costs of funds given their reliance on customer deposits to generate new loans to borrowers.
While interest costs related to current and savings accounts may be minimal, savers in fixed deposit accounts demand a premium to keep their monies locked in bank vaults.
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