The perfect timing for SACCOs to embrace digitization
There are over 22,000 registered cooperative societies in Kenya, 13,000 out of which are Savings and Credit Cooperative Societies (SACCOs) that play a critical role in every sector of the community, especially as a great vehicle for mobilizing savings and facilitating investment. 175 are deposit-taking and therefore, regulated by the SACCO Societies Regulatory Authority (SASRA).
The Fourth Industrial Revolutions (4IR), which is built on the foundations of the Third, combines emerging technologies like Internet of Things (IoT), Robotics, Artificial Intelligence and Blockchain among others. Whereas many financial services players have invested heavily in digitization and deployed secure core banking systems (CBS) with seamless integrations to front-end technologies, omni-channels, cloud, and other emerging technologies, SACCOs continue to rely on customized ERPs for their banking needs. As an entry level intervention, this setup was sufficient in yesteryears, but is no longer adequate for the digitization era. This is because ERPs are not inherently developed with integration in mind since they are intended to be “all-ensuite”. They are built for internal functions like financial management, payroll, HR, procurement etc. and not for banking functions. When used to perform banking functions including integration to channels, many things could and have gone wrong including latencies where response time for transactions is delayed, introduction of a single point of failure especially when running batch jobs and integration and security vulnerabilities, among others.
For SACCOs to optimize their potential in this digital era, they need to deploy CBSs inherently built to serve their core business (mobilization of deposits and lending). A CBS is built for faster processing of transactions such as instant loans and appraisals, onboarding via channels, smooth bulk processing of batch jobs such as check off and dividends, without impacting operations.
Customer demands have increasingly shifted over the last decade. This shift has been accelerated by the Covid-19 pandemic. Today, customers are accustomed to doing things online and are hesitant to visit banking halls, having been pushed by prevailing circumstances to adopt a digital-first mindset. SACCOs members are no exception to this. The financial services sector is not yet a level playing ground and SACCOs need to increase their uptake of technology for their survival and growth. SACCOs need to fully digitize processes such as loan scoring, top-ups, automated interest management, loan restructuring, repayment and loan recovery using sniffing functionality. Without a proper CBS that removes many of the manual processes, SACCOs face Credit, Liquidity and Operational risks as they may issue loans to borrowers who are not creditworthy and make disbursements that exceed deposits. All these can be detected and managed through digitization. Security is at the core of CBSs which run on more secure platforms and enable integrations that are secure, leading to better confidence from stakeholders in the sector.
In recent years, digitization has become a high priority conversation among SACCO executives and Boards. Some already have a Digital Strategy and a well-defined roadmap in execution. Many however are moving slowly, adopting only mobile banking, yet mobile banking is only a part of digitization and its adoption without strategy may be even more “dangerous”, if the holistic fundamentals of a successful digitization strategy and process are not undertaken. The key pillars of a successful SACCO digital transformation include infusing a revolutionary digital mindset into the traditional SACCO culture, replacing old technological infrastructure, empowering decision makers and improving processes by introducing policies that support the change.
It is time for SACCOs to embrace digitization with determination. They should begin with a digital strategy and a well-defined roadmap and source the services of experts, in order to navigate this process. SACCOs need to automate digital lending decisions, digitize all lending and recovery processes to entice millennials and the next generation of members.
Author: Wambui Mbesa, Chief Executive Officer, Netcompany-Intrasoft East Africa