The Role of SACCOs as International Remittance Providers in Kenya

SACCOs have the potential to boost financial inclusion and stimulate economic growth in Kenya through international remittances, particularly in underserved rural areas, a new report says.

However, SACCOs currently play a limited role in handling remittances, despite Kenyans abroad sending Ksh.539.6 billion ($4.19 billion) back home in 2023. This is primarily due to regulatory and operational barriers.

The study, carried out by Financial Sector Deepening Kenya (FSD Kenya) and the Sacco Societies Regulatory Authority (SASRA), with funding from the International Fund for Agricultural Development (IFAD), examined the demand, supply, and regulatory context of the remittance market in Kenya, with a focus on expanding SACCOs’ participation.

Data was collected from 110 remittance recipients and members of the Kenyan diaspora for the demand analysis, while 140 regulated SACCOs participated in an online survey for supply-side insights, with further interviews conducted with 36 SACCOs.

Additionally, 21 Financial Service Providers, three regulatory bodies, and five government agencies contributed to the study.

Key Findings:

1. Untapped potential: Many Kenyan diaspora members are SACCO members, but they typically use other channels for remittances due to SACCOs’ limited service offerings and low awareness of their potential in this sector.
2. Regulatory challenges: Restrictions related to foreign exchange and SACCOs’ exclusion from the national payment system hinder their capacity to manage international remittances directly.
3. Operational limitations: Some SACCOs lack the necessary technology and expertise to efficiently facilitate international remittance transfers.
4. Demand for expanded services: There is an interest from diaspora senders and domestic recipients for SACCOs to offer more direct and diverse remittance services.

Also Read: Urgent Reforms in SACCOs Essential for Economic Growth, Says CS Oparanya

To address these challenges, the report proposes two strategies:

Strategy 1: Strengthening partnerships between SACCOs and established Remittance Service Providers, such as banks, MFIs, and Money Transfer Organizations, enabling SACCOs to grow within the existing regulatory framework.

Strategy 2: Pushing for regulatory reforms and establishing a shared platform, like the proposed SACCO Central, to give SACCOs a collective infrastructure for participation in the remittance market.

The report calls for collaborative efforts among SACCOs, policymakers, regulators, and development partners to address these challenges. Recommendations include:

1. Regulatory reform: Revising regulations to allow SACCOs to participate more directly in the remittance market.
2. Capacity building: Providing SACCOs with training and tools to implement remittance technologies, offer financial literacy, and recruit skilled personnel.
3. Product innovation: Developing remittance-linked services, such as diaspora savings accounts and remittance-backed loans, to better serve the needs of diaspora senders and recipients.
4. Awareness initiatives: Conducting campaigns to educate users on the benefits of SACCOs for remittance services.