Sacco reforms needed to drive mortgage uptake

National Treasury Principal Secretary Dr Chris Kiptoo (left), Cabinet Secretary for Cooperatives and Micro and Small Enterprise Simon Chelugui at the National Treasury building Nairobi on Wednesday, March 15, 2023, during the unveiling of Kenya national Entrepreneurs Savings Trust (KNEST) first board of Trustees. PHOTO | DENNIS ONSONGO | NMG

The proposal by the Co-operatives ministry to rope in saccos into the mortgage lending market through a tax incentive for their borrowers is a good step towards deepening the thin home loan market in the country.

These institutions are now a major player in the financial sector, collecting billions of shillings annually in member deposits and providing similar amounts in loans.

They carry an advantage in that they operate across all income brackets, and have therefore been key in growing financial inclusion in the informal sector.

Reforms are, however, necessary in the sacco sector before it can fully take on home loans, which are unique in the sense that they need long-term funding that is in short supply.

Saccos generally have short-term deposits on their books, and would therefore be susceptible to an asset-liability mismatch if these were directed into long-term mortgage.

This is a similar problem to that experienced by commercial banks and has been identified as a major reason for the fact that Kenya has only 26,723 home loans in a market with an annual housing deficit of more than 200,000 units.

This is why much needs to be done if the plan to leverage on saccos to drive home ownership is to succeed.

First, the institutions themselves must make a concerted effort to raise long-term funds, whether from their members or through partnerships.

Secondly, the reforms being mooted by the government to provide the tax relief available to bank mortgage borrowers to saccos will be key in incentivising use of the growing deposits in these institutions for home loans.