KENYAN SACCO SOCIETIES IN LIQUIDITY CRUNCH; EVIDENCE FROM CORONAVIRUS PANDEMIC SHOCK

Abstract

The coronavirus pandemic shock has attenuated economic activity decline in various sectors of the economy across the globe. Financial service providers such as; banks, insurance firms and Sacco societies among others have been impacted by the pandemic shock as livelihoods of the people have been disrupted by the first spreading virus leading to job losses as well as weak demand and supply forces in the market. The unique model of Sacco societies’ business puts them in an even more complex situation which threatens their going concern concept. The uniqueness of the Sacco societies is that they depend on their members’ cumulated savings deposits and shares for financing rather than external borrowings from other financial institutions to conduct their business. Therefore, the study investigated the impact of the coronavirus pandemic shock on the liquidity of Sacco societies in Kenya and specifically, the study examined the covid-19 pandemic shock causal factors, institutional organizations` gaps, exclusion of Sacco societies by the national government in its mitigation measures against covid-19 pandemic shock as well as determining the response strategic interventions by the Sacco societies to stay afloat. The study found out that the majority of the Sacco societies are facing liquidity challenges more especially community, farmer and private-based Sacco societies. The loan demand has declined with long-term loans significantly impacted on by the pandemic shock. In addition, loan default has increased and non-remittance of Sacco deductions as well as withdrawal notices have also spiked up in some Sacco societies. The study discovered that the government has categorically excluded Sacco societies in its mitigation strategies to protect businesses across different sectors and in particular exclusion of Sacco societies from the credit guarantee scheme and non-classification of Sacco societies as essential service providers were cited as some of the evidence towards the exclusion concern. Besides, the Tax Laws (Amendment) Act, 2020 and Finance Bill, 2020 had very little if any touching on the plight of the Sacco societies in the wake of covid-19 pandemic shock. The response strategies instituted by Sacco societies are restructuring of loans, loan rationing, developing of new Sacco packages and recapitalization of returns as well as restricted external borrowings. An exploratory study covering four months from March to June 2020 was conducted among 120 Sacco societies from 11 counties across the country with interview schedules guiding the collection of primary data via telephone calls to the Chief Executive Officers of the targeted Sacco societies. Secondary data was obtained through document analysis of the financial reports of those societies. Judgmental techniques were employed in picking on the Sacco societies which constituted a sample size of 120 Sacco societies although only 75 responded. Data was analysed descriptively with the study findings being presented by the use of tables, graphs and pie charts. The paper recommends that the vulnerability of the Sacco societies in the wake of covid-19 pandemic shock requires immediate external interventions such as the credit guarantee schemes to cushion Sacco societies from the risk of loan default and at the same time improve their liquidity position. The perennial non-remittance of Sacco deductions by institutional organizations needs to be addressed urgently by developing new regulations to deter government organizations and private employers from unnecessarily holding members’ savings and other dues. The community, private and farmer-based Sacco societies seemed to be adversely affected by the covid-19 pandemic shock compared to the teacher and government clusters of Sacco societies. This may be due to the differential livelihoods sectoral impact of covid-19 and the weak financial framework of those Sacco societies to withstand any shock hence consolidation of Sacco societies should be seriously discussed to form entities which are strong enough to withstand shocks.

JEL: G21; G22; G32

Article visualizations: