Savings and credit cooperative societies (saccos) stepped in to fill the place of banks, pushing out Sh91.6 billion in new loans in 2024 to households and businesses amid a credit crunch resulting from high interest rates and loan delinquencies.
The saccos' loan book hit Sh747 billion in the period from Sh655.4 billion the year before.
Data from the Economic Survey 2025 shows only Saccos marked an improvement in lending to the private sector in the year ended December 2024, as disbursements from banks and microfinance banks (MFBs) slid over the same period.
Outstanding credit by commercial banks to the private sector fell by Sh40 billion to Sh4.03 trillion from Sh4.07 trillion, while issuances by MFBs were down by Sh6.7 billion to Sh36.3 billion from Sh43 billion.
Previously in 2023, commercial banks had lent out an additional Sh500 billion to businesses and households, outpacing Sacco's new lending of Sh68.2 billion at the time.
Lending by microfinance banks has been in decline, falling again in 2023 by Sh3.6 billion.
Borrowing costs surged for much of 2024, as the Central Bank of Kenya (CBK) tightened its monetary policy in the first half of the year to address inflation and exchange rate concerns.
Meanwhile, banks failed to pass on the benefits of falling interest rates towards the end of the year, with the average rate for loans and advances closing the year at 16.89 percent in December 2024 from 14.63 percent previously.
“Loans and advances rate for commercial banks rose from 14.63 percent in December 2023 to 16.89 percent in December 2024, increasing the loans-deposits spread to 6.44 percentage points in December 2024 from 4.53 percent in December 2023,” the Kenya National Bureau of Statistics (KNBS) said.
The trend of higher loan disbursements by Saccos was established early in 2024 as the cooperatives observed a surge in demand for credit amid untenable interest rates from banks.
Interest rates on Sacco loans remained relatively unchanged, as the cooperatives passed on the benefit of a lower funding base, unlike their banking and MFB peers.
“We are under pressure because you find that many people are transferring their loan facilities to us. We are also seeing a sharp increase in loan requests from customers as commercial bank interest rates remain in the 20 percent range,” Harambee Sacco chief executive officer George Ochiri said in a previous interview.
“We have an internal policy as Saccos on interest rates where we have the advantage of charging lower interest rates to banks because a large proportion of funds lent out are from our members. Our interest rates are set at 12 percent on reducing balance, which brings the effective interest rate to around 7.5 percent.”
Loan issuance by Saccos is likely to remain resilient as commercial banks interest rates remain high despite CBK rate cuts with lenders blaming the sticky rates onchallenges with the risk-based pricing framework.
“Credit extended by Saccos has been resilient, partly reflecting comparably lower lending rates compared to the banks,” CBK Governor Kamau Thugge said in October.
Banks have called on the CBK to review the pricing framework to help bring the lenders rates down.
Commercial banks, nevertheless, remain the largest credit issuer based on their outsized loan book in contrast to Saccos and MFBs.
