Avoid bad loan pitfalls in sacco home funding

GRAPHICS | GENNEVIEVE AWINO | NMG

Land purchases and home ownership plans accounted for a third of fresh credit advanced by savings and credit cooperative societies (saccos) last year.

Data published in the annual Sacco Societies Regulatory Authority (SASRA) report for 2022 reveals that land and housing-related borrowing accounted for 33.2 percent of new loans last year.

This is a growth from 26.9 percent recorded in 2021 showing the aggression by Saccos in empowering its members to acquire land and houses.

The preference for lending towards land and housing has been based on the incremental mortgage lending model by the institutions that help them manage liquidity as they mitigate risk.

The incremental lending model is different from conventional mortgage used by commercial banks as it is premised on short-term credit facilities of between three to five years

The SASRA in the report also acknowledged the partnership of Kenya Mortgage Refinance Company with selected institutions as another driver of increased lending to housing.

Even though saccos have slowed down lending to other sectors, including agriculture, the increased lending to fund home ownership dreams for members is a welcome move given that this is providing an alternative funding model to millions of savers who have been locked out of the formal mortgage market.

But given the previous turbulence in the property market that left many financiers with significant bad loans, the sector regulator must increase its oversight mandate to ensure that saccos lend responsibly to reduce exposing guarantors to long-term deductions.