SACCOS LEARN THE ROPES IN FINANCIAL TECHNOLOGY (FINTECH)

Time and space are increasingly shrinking making processes much easier, and less demanding thanks to technology. In the financial industry, fintech is slowly settling as the norm and Saccos are not an exception to this trend.  Caroline Mwendwa, editor, Biashara Leo magazine recently had an interview with the Sacco Societies Regulatory Authority (SASRA) CEO, Mr John Mwaka for some insights on the digitization of Saccos. Excerpts herewith:

Caroline: Tell us about SASRA’s role.
Mr Mwaka: SASRA’s role is to effectively regulate, supervise and develop the Sacco industry by promoting sound business practices in order to enhance stability, growth and access to financial services.

Caroline: Is there any law that guides the use of technology by Saccos?
Mr Mwaka: The Sacco Societies (Deposit Taking SACCO Business) Regulations 2010 under Reg. 3(b) provides inter alia that DT SACCOs must maintain an information management system (MIS) that is capable of performing and accounting for all transactions and providing the minimum reports required by the authority.

Caroline: How is technology use impacting your operations as a regulator?
Mr Mwaka: A management information system (MIS) is an enabler for organizations to achieve operational efficiently in their businesses. Thus the fact that the authority is able to receive regulatory reports as and when they are required enhances offsite surveillance and the operational efficiency of the authority to make informed decisions in discharging its mandate.
By embracing technology, SASRA has been able to periodically measure performance trends in the DT SACCO sub sector, drawn appropriate conclusions that have helped shape its landscape by way of issuance of guidelines and guidance notes aimed at addressing the challenges it faces.
Further, existence of an up to date central financial data repository for all licensed DT SACCOs has enabled the authority to conduct evidence based research that has informed appropriate policy formulation.

Caroline: Would you say that Saccos’ compliance to law is being affected by technology use?
Mr Mwaka: The DT SACCO sub sector’s operational efficiency has greatly improved and positively impacted by virtue of its players embracing the usage of ICT in their daily operations. This is because the board and management of DT SACCO can generate prompt financial reports which are used to inform appropriate decision making. This is evidenced by the overall improved compliance status and performance indicators as reflected in the annual supervision reports produced by the authority.

Caroline: What do you project about Saccos’ use of technology in the future?
Mr Mwaka: Innovation is the great way to success in this digital age. The path of innovation in business means doing something different, smarter or better that will make a positive difference in terms of value, quality or productivity by using emerging or proved technologies. The Saccos that invest in technology and choose the path of innovation are bound to increase their market share, financial performance and overall competitiveness. Additionally, speed and accuracy are at the heart of making the right decisions for any Sacco business.

Caroline: Any advice to Saccos about embracing technology?
Mr Mwaka: As earlier stated, ICT in today’s business is a strategic enabler. Digital delivery of services is no longer the alternative channel of service delivery but is increasingly becoming the key thing especially for the digital natives. Invest strategically with appropriate risk mitigation.

Caroline: Is digitization of financial processes beneficial to the economy?
Mr Mwaka: Rapid development and extension of digital platforms and digital payments provide the speed, security, transparency, and cost efficiency needed to increase financial inclusion. The broader access to and participation in the financial system helps reduce income inequality, boost job creation, accelerate consumption, increase investments in human capital, and directly help the poor people to manage risk and absorb financial shocks.

Caroline: What challenges do you face as a regulator and how do you solve them?
Mr Mwaka: The prudential standards and operational regulations are designed to enhance sound business practices across the Sacco subsector and thereby enhance the competitiveness of the deposit taking Saccos. A majority of the Saccos fully understand the competitive pressure in the deposit taking market over the last decade coupled with fast changing business environment which demands new thinking in the conduct of Sacco business.
From this viewpoint, SASRA has had mixed experiences with a section of the deposit taking Saccos re-inventing themselves to remain competitive and sustainable, thereby making compliance a natural outcome of properly aligned business strategies. The second section is Saccos who still rely on the old ways of conducting business including operational boards of directors, high interest rates on member deposits as a competitive edge and over-reliance on external borrowing to fund lending activities. This is not tenable in a deposit taking business and consequently such Saccos have had to exit the deposit taking business as evidenced from annual supervision reports.
However, across the divide, the authority’s key challenge has been increasing business risks associated with technology and opening of common bonds.  It is for this reason that the authority has embarked on review of the risk based supervisory policy with a view to enhancing and entrenching risk management culture across all layers of the organization. This will result in a revised supervisory policy framework that better communicates our expectations from the Saccos in terms of integrated risk management framework and strategies.

 Caroline: How has SASRA leveraged on technology?
Mr Mwaka: As a regulator, we have adopted a wide range of data gathering and analytical tools, as we continue to learn more about individual Saccos’ activities and the overall systemic activity. We hope to monitor the industry more effectively and to predict potential problems instead of being reactive. Our supervisory procedures and data requests will increasingly be tied to stress tests, asset quality reviews and enhanced reporting requirements. We hope in the coming days to use sophisticated analytical tools on large volumes of data, to help us compare scenarios and address potential issues before they become full-scale market problems.

Caroline: Any other pertinent issues?
Mr Mwaka: We are in the coming quarter commencing on a survey on sectoral lending by the Saccos which will enable effective tracking of credit by purposes. This we believe will not only enhance credit risk monitoring, but also enable accurate and timely report of credit activity by the Sacco subsector.