With Disruption In The Financial Sector, Saccos, Banks And Fintechs Are On Shifting Sands

The financial sector in Kenya is a global trailblazer. Players in it, should know that they are leading not following; charting their own path, not taking a well-trodden one. To survive (let alone thrive) they should also know that the sector has expanded to include telcos’ and fintechs

Contrary to popular belief, the Sacco movement in Kenya is shrinking. This has been most profound with the advent of the rapid technological changes in the past decade or so; initially the Internet, then the ubiquity of the cell ‘phone, followed by M-Pesa and now the smart phone. Na bado! (more is coming). The Communications Authority of Kenya 2015/2016 Q1 Sector Statistics Report, shows that mobile subscriptions grew to 37.8 million during the quarter in Kenya. In addition, mobile penetration grew to an impressive 88.1% and internet subscriptions hit 21.6 million, meaning a penetration of 74.2% was achieved during the same period. This aside, it is estimated that by 2020, there will be 50 billion connected devices with mobile being the primary access to internet and 80% of the world population will have access to a mobile phone, 60% of whom will be through a smart phone or low cost tablet. With Kenya being known globally as the Digital Finance Success (DFS) story, your guess is as good as mine what this means for the economy in general (ahem ahem, traditional taxis) and the financial landscape in particular. And to be sure, the financial industry in Kenya has grown to include telcos’ and financial technology firms (fintechs). Therefore, the Sacco and fintechs, cannot continue seeing themselves as spectators, but as active and endangered players.

Based on an FSD (Financial Sector Deepening) Report, entitled, Savings for the Poor in Kenya, driven by technology banks and MFI’s have moved sharply North, and Saccos taken a plunge, re financial penetration. What makes this revelation dire is that Saccos are a cornerstone to the success of Vision 2030. Saccos are meant to be the primary vehicle through which Kenya mobilizes savings from the paltry 16% to the desired 30%. And for this to happen I believe there must be a revolution in the Sacco movement. As such, the M-Pawa app by Stima Sacco and the remote registration Digital Sacco (both mobile driven) are a breath of fresh air.

The genesis of the Sacco movement is social, and for decades has been successfully buoyed by this. Yet this very ‘socialism’ ironically has been the movement’s nemesis. It has become the Saccos corporate culture. I believe that the conservative and ‘perceived as old’ nature of being “social”, is the very reason why Saccos were overtaken by technology at the speed money is transferred on M-Pesa. Technology is hip, ‘young’, and perceived ‘risk-embracing’. A perfect remedy for attracting a bulging youth. A year ago it would have taken 90 days to open a bank account and apply for a loan. Today, with KCB-MPESA this can happen in 9 minutes flat! Small wonder then that in the September 2015 copy of The Banker magazine, Sir David Walker, ex chairman of Barclays and Morgan Stanley said that, “If banks don’t embrace cultural change they will be overtaken by tech companies.” He might as well have been referring to Saccos.

The boldest move by Saccos in their decades long history was the starting of the FOSA (Front Office Services) in the 90’s and breaking of the common bond, in 2003 (that is allowing Saccos to seek membership outside the traditional captive market, usually employees in the same institution). Looked at in isolation, this is revolutionary yet in fast-paced DFS Kenya this is old-hat. If in doubt look at Mshwari that was crafted along the Sacco model-save three months and borrow. The only difference is that no guarantors are involved. Still, Mshwari revolutionalized borrowing   to the tune of escalating CBA from 18th position (and Tier 2) to pole position (and Tier 1) by customer base in little more than twelve months and spawning other borrowing platforms. Where were the Saccos when their model was copied? SASRA (Saccos Society Regulatory Authority) ranks Stima Sacco third by asset base. By many counts, Stima Sacco is progressive, and under the stewardship of Paul Wambua continues to experience growth of an average of 15,000 members year on year. On its own, commendable growth; compared to Mshwari that, according to the Business Daily, registered almost 1M members in one year, the potential of astronomic penetration while leveraging on technology within the Sacco movement becomes seen in clearer light.


In these times of rapid change, financial technology firms may themselves be overtaken by technology. And why? With low barriers to entry, rapidly increasing power of buyers and rapidly diminishing power of suppliers, coupled with intense industry rivalry and continual threats of substitution, fintechs should not sit pretty either. A decade ago, to start a fintech would have required a comparative massive input in resources. Today, all I need is a bit of coding knowledge, a laptop and the Internet which is why, Fintech start-ups are already quietly and rapidly crawling inside banks (and Saccos) like armies of ants, often unnoticed, through small holes at the corners of old rickety doors and windows, weakening hinges” (LinkedIn. Brackets mine). Then there are i-Hubs (allowing ‘safe’ and much cheaper, rapid experimentation), Open Source and Cloud technologies. You can access Gmail or Yahoo email anywhere globally. Imagine doing so a Sacco or bank. It is possible with Cloud. With Cloud all the infrastructure (IT systems) of a financial institution can be availed online for instant deployment (i.e. plug and play). Open Source means that there are programmers who are happy to write competitive software and avail it online. For free. Yes, that right, what to one is a core business, to another it’s a hobby. So?, you ask. Well, as common place as it is today, fifteen years ago, creating office email was revolutionary, yet those who did it used open source. Today Open Source itself is common place. According to the International Data Corporation, as at end of Q2 2015, 85% of smart phones globally (probably yours included) run on the Android platform. Android itself is, and is designed from, Open Source software. The young man who manages my website reconfigured his own version of Android for his phone and gave it out to the online community. All for free. Sharing is the in-thing now. What this means is that where once maintenance was a source of income for fintechs, now an entire and ever growing online community is happy to share problems and practical solutions. For free. What does all the foregoing mean? That exciting and turbulent times still lay ahead, and Saccos, banks and fintechs cannot sit on their laurels.

My one day program, ELECTRC (Exploring Leadership in a Time of Rapid Change), addresses these challenges and through learner centred discussions and debates and using robust models, reveals possible solutions to them

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