CENTRAL BANK OF KENYA
Remarks by
PROF. NJUGUNA NDUNG’U
GOVERNOR
AANNNNUUAALL IINNTTEERRNNAATTIIOONNAALL CCOOOOPPEERRAATTIIVVEE SSUUMMMMIITT 22001144
““TTrraannssffoorrmmaattiivvee DDeevveellooppmmeenntt:: HHaarrnneessssiinngg tthhee CCooooppeerraattiivvee
EEnnttrreepprreenneeuurrsshhiipp iinn RReeaalliizziinngg aa SSuussttaaiinnaabbllee EEccoonnoommyy””
Sarova Whitesands Hotel, Mombasa
30th October 2014

Mr. Carilus Ademba, Chief Executive Officer, SACCO Societies
Regulatory Authority (SASRA);
Mr. David Muturi, Chief Executive Officer, Kenya Institute of
Management;
Mr. Terry MacDonald, Managing Director of the Global
Cooperative Group Inc., Mexico/Canada
Distinguished Participants;
Ladies and Gentlemen:
It is my pleasure and honour to join you for this important
Summit to discuss the role of co-operative societies in both
promoting and enabling opportunities for a sustainable economy.
Before I make my remarks, let me take this opportunity to thank
the organisers of the Summit, Kenya Institute of Management
(KIM), for inviting me to contribute to this forum. I would also
like to extend a warm welcome to all the participants who have
travelled from other countries to our coastal city, Mombasa, and
to say ‘karibu sana’. I hope your stay will be fruitful and
enjoyable.
Being the inaugural Summit, I would like to commend KIM for this
initiative and to encourage you to continue to host such important
forums. This Summit will provide an excellent platform to share
our experience and learn from global lessons to capitalize on
opportunities and curb the challenges encountered not only within
the cooperative movement but also in our diverse economic
activities. I am aware that you will specifically discuss the critical
Role of Financial Cooperatives within the economy, including in

the promotion of youth employment, entrepreneurship and income
generation within the informal sector, as well as in enhancing
social and economic development. I also note that you will discuss
corporate governance that is critical to the growth and ability of the
cooperative sector to meet the needs of its members, customers, the
government and the communities it serves and operates in.
Ladies and gentlemen: Financial Cooperatives in Kenya are playing
a key role in financial intermediation. I am happy to note that
Savings and Credit Cooperative Societies (SACCOs) in Kenya have
sustained their strong upward growth over the years. Consequently,
the total assets of SACCOs stood at Ksh.335.4 billion (7% of the
revised nominal GDP) in December 2013. However, these assets
accounted for only 8.2 percent of the total assets of the financial
sector. It is important to note that the financial sector has continued
to support growth. Specifically, the financial and insurance services
sector accounted for 9.2 percent of real GDP growth in 2013.
Why do we emphasize financial sector growth? Because it has
direct and indirect channels for inclusive growth. Studies
{including Beck et al. (2004) and Honan (2004)} have provided
empirical evidence showing that financial development reduces
income inequality and absolute poverty levels in developing
countries. So growth will be checked if income inequality and
pockets of poverty persist. Financial cooperatives in Kenya are
therefore playing a key role to support an inclusive growth that
reduces inequality and poverty.

Ladies and Gentlemen: It is estimated that there are more than 1
billion people in the world afflicted by poverty, and over
218 million people who live in extreme poverty. Most of them are
from developing countries, mainly in sub-Saharan Africa.
Poverty in Africa is predominantly a rural phenomenon,
although the urban poor are a rapidly growing segment of the
poor in our countries. In particular, the Eastern and Southern
African region has one of the world’s highest concentrations of
low income and rural poor populations. Closer home, almost half
of the Kenyan population (46%) are below the poverty line. Real
growth must surpass population growth for effective poverty
reduction and supported by targeted interventions.
Ladies and Gentlemen: One avenue that has promise in the fight
against poverty is the enhancement of financial inclusion and
financial sector development that is, market access. It is a fact
that the majority of the peoples of Africa are still unbanked and
lack access to financial services. In Sub-Saharan Africa, for
instance, only 24% of the adult population was reported to have
an account at a formal financial institution (World Bank, 2011).
It is also a fact that the enhancement of financial inclusion is
critical for the sustainable reduction of poverty. Increasing
evidence shows that financial inclusion is very important in
reducing the economic vulnerability of households via savings
for consumption smoothing, promoting economic growth,

alleviating poverty and improving the quality of peoples’ lives
through capital accumulation via savings-investment cycles
supported by affordable credit.
Specifically, access to financial services by the low income and
poor populaces provides security for their savings and widens
economic opportunities through savings-investment cycles. A
number of countries have, therefore, made significant strides in
enhancing financial inclusion, including Kenya, whose
population accessing formal financial services has increased over
the years; it stood at 66.7% in 2013 compared to 41.3% in 2009.
Similarly, the proportion of the population totally excluded from
financial services has declined from 31.4% in 2009 to 25.4% in
2013.
Ladies and Gentlemen: These indicators are in line with Kenya’s
financial sector strategy towards the accomplishment of Vision
2030. The Vision envisages an all inclusive financial system that
provides access for the majority of the population as the central
goal of the development of our financial system. The strategy is
therefore hinged on a three-fold objective of ensuring that the
financial system is accessible, yet also stable and efficient. When
we talk about efficiency, we also include cost of the financial
services. This means that while we pursue policies and

innovative solutions for inclusive finance, we continue to
encourage strong and efficient financial institutions as a
safeguard to ensure continued stability of the financial system.
To achieve this, for instance, the Central Bank of Kenya (CBK)
has undertaken several initiatives and reforms aimed at boosting
overall financial inclusion and financial stability. These
include the:
expansion and diversification of banking and payments
infrastructure including bank branches, microfinance banks,
shariah compliant banks, credit reference bureaus (CRBs),
mobile-phone financial services and agency banking
platforms;
promotion of financial education and consumer protection;
implementation of a framework to promote transparency in the
pricing of credit and mortgages by banks through the Kenya
Banks Reference Rate (KBRR); and,
enhancement of anti-money laundering regimes and deposit
protection facilities.
These initiatives and reforms have led to notable improvements
in the levels, reach and depth of access to financial services
especially among the low income and rural population as well as
micro, small and medium enterprises (MSMEs).

Ladies and Gentlemen: The strengthening and development of
SACCOs, has also been flagged as being pivotal in savings
mobilization and wealth creation. In Kenya, the SACCO subsector plays an important role in the financial sector, providing
a wide range of financial services to Kenyans, including low
income households and MSMEs. Given the size of the SACCO subsector, and its contributions to financial inclusion and economic
growth, the SACCO Societies Regulatory Authority (SASRA) has a
key role of providing the requisite oversight over deposit taking
SACCOs to ensure the stability, accessibility and efficiency of the
sub-sector.
Prior to the establishment of SASRA, SACCOs particularly those
with Front Office Operations, were not comprehensively regulated.
However, the Cooperative Societies Amendment Act of 2004
sought to introduce some degree of government oversight. The
SACCO Societies Act was then enacted in 2008 and
operationalised to prudentially regulate and supervise deposittaking SACCOs. SASRA, which was also established as a result,
in 2009, has since executed its mandate as the regulator of
SACCOs diligently and with admirable commitment.
Ladies and Gentlemen: I am certain that we can attest to the fact
that regulation is of great benefit to the SACCOs sub-sector. The
benefits of an adequate regulatory environment are well

appreciated across the financial system. Not only does regulation
and supervision ensure the safety and soundness of institutions,
but it also promotes innovation, growth and development of an
industry. It also creates an enabling environment and acts as a
road map and catalyst towards increased outreach and
sustainability. In particular, it increases investor confidence,
competitiveness, corporate governance and integrity in leadership
as well as safety of member deposits. But I must emphasize in
saying this that our goal is not more regulation but better and
more targeted regulation to develop the market. In addition,
regulation in the financial sector is to manage entry into the
market and orderly exit and above all, the regulator is an agent
of market development.
Because of our confidence in regulation and supervision, the CBK
has supported and will continue to support SASRA and the
SACCO sub-sector in its growth and development. To name a few
areas of support:
i) CBK played a pivotal role in the technical development of the
SACCO Societies Act, 2008. Further, CBK seconded a staff
member to the Ministry of Co-operatives in 2009 for 6 months
to assist in the development of the SACCO Societies (Deposit
Taking SACCO Business), Regulations, 2010 to implement the
Act.
ii) CBK has a formal working partnership with SASRA to engage
in continuous technical consultations to guide the licensing,
regulation and supervision of deposit taking SACCO Societies.

As a result of this, SASRA officers have been attached to the
Bank to learn from CBK’s licensing and surveillance (off and
on-site) of deposit taking microfinance institutions. This
learning has informed SASRA’s licensing and surveillance of
SACCOs.
iii) CBK is a member of the SASRA Board to provide guidance
and oversight over the operations of the Authority.
Ladies and Gentlemen; although SACCOs are widespread in terms
of presence and penetration, the use of SACCOs has decreased
since 2006, from 13.5% in 2009 to 9.1% in 2013. From the 2013
FinAccess Survey, the key factors leading to this decline have
been established as loss of money and unexplained/unexpected
charges levied on customers of SACCOs.
It is critical for SASRA and the key players in the industry to
establish the reasons for the decline and mitigate them. This
would include perhaps embracing more innovative delivery
channels, consumer protection and financial education to
enhance access, quality and usage of financial services. More
importantly, there is need to better understand customer needs,
behaviour and dynamics so as to offer suitable products. The
SACCO sector should invest more in consumer research to
facilitate the development of customer-centric products.
Initiatives such as the recently launched Kenya Financial
Diaries are a useful input in this regard. The diaries which
tracked the financial lives of over 300 households across Kenya

offer useful insights into the financial needs particularly of low
income households. But these diaries challenge the financial
sector institutions and regulators to develop products that target
the poor – it is a market waiting to be discovered.
Finally, Ladies and Gentlemen, as the cooperative industry
develops, we will continue to witness growth and diversification
in infrastructure, client outreach and products. We have already
began to witness a number of SACCOs seeking to convert or
acquire banking licences. Others have expressed interest in
investing in the equity of commercial banks and microfinance
banks. Furthermore, several banks have created working
partnerships with particular SACCOs to provide members with
bank-related advantages. These developments are welcome,
however, they should be carefully considered in terms of
differentiation, cost and benefits and impact on the vision and
mission of the SACCOs, the SACCO sub sector and the Cooperative
Movement.
It is worth noting that no single type of institution presents an
optimal solution to reaching all market segments with all types of
financial services. Therefore the existence of a varied array of
financial service providers reaching different niche markets
using different financial solutions is inevitable. The development
of credit unions in United States of America and Europe is an

attestation to the fact that SACCOs have the potential to grow
their reach.
With those remarks, Ladies and Gentlemen, I wish you all
fruitful deliberations.
Thank you