How chamas are choking under the Covid-19 pandemic

Before the coronavirus struck Kenya, investment groups popularly known as chamas met regularly, micro-finance institutions lent freely and debt repayment worked efficiently through co-guarantee scheme where loans were covered by other members through savings.

Come March 2020, the government started discouraging gatherings and a travel ban ensued in April. The safety protocols, which encouraged social distancing to control spread of coronavirus, scattered group meetings and created wider distance between them and savings or loan repayments.

Unlike banks, which have stronger financial backbones, deposit-taking saccos and small microfinanciers, which have meagre savings, have been dying slowly as members depend on face to face meetings to pool funds.

And for those who borrowed with little intention of repaying, the pandemic provides the best excuse.

Fountain Enterprises Programme (FEP) Sacco, with over 15,000 members has had to change its headquarters, shut down several branches and resolve to sell its assets to survive the onslaught from Covid-19 menace.

Recover loans

Sacco chief executive officer Jackson Wanjau told Smart Business that the outfit, which was established mainly by recruiting Kenyans abroad started receiving a hit when dollars stopped flowing in March before it hit home hard.

“Kenyans abroad have also borrowed and many were remitting up to Sh50 million per month, then it was reduced to below Sh15 million suddenly. We largely lend to small businesses and some are in informal settlements where we rely on the co-guarantee to recover loans. When they stopped meeting, no savings flew in and loan repayment grounded to a halt,” Mr Wanjau said last week.

The sacco has now been forced to shelve its multibillion shilling housing plan on its plots in Nanyuki and is instead selling them to pay salaries and meet other obligations.

Loans to schools and churches have been badly affected since some private institutions are not even planning on reopening in January despite having been financed to buy buses among other facilities.

Defaults added to a decline in savings and withdrawal by members whose jobs and businesses were affected by the economic turmoil have put most micro finance institutions at odds and in a fight for survival with chances of winning waning by the day.

The Cooperative Alliance of Kenya (CAK) has been appealing to societies to reconsider suspending interest on existing loans to cushion members but many saccos may not even have the leeway to do so.

Economic burden

Even chamas that involved employees have crumbled under the economic burden brought by pay cuts, job losses and unpaid leave due to the threat of the pandemic.

CAK in a recent analysis on the pandemic listed saccos in horticulture, hospitality and aviation industries as the most hit and whose members have been withdrawing their savings to cater for basic household needs

At FEP, every employee has been turned into a salesperson to help dispose of part of the 233 plots in Nanyuki as a stop gap measure to survive.

Members are begged to reduce their withdrawals or postpone them for now. Those who are liquid are, on the other hand, urged to consider pumping some more money into the sacco.

The disposal, which is not easy at a time when even potential buyers are struggling, has pushed the firm to engage sales agents, an additional cost that is further draining expected yields from the assets.

Another Nairobi-based chama comprising 10 men had mobilised over Sh2.3 million and was on the verge of borrowing Sh4 million before the pandemic hit.

“We last met in February and much as we had thought contributions would be sustained even without meetings, it proved a bit difficult. Our monthly contributions fell by half and we have had to start meetings again even if virtually,” Mr Leonard Audi who chairs the Decagon Pride Self Help Group said.

Small time borrowers

The Kenya Population and Housing Census last year showed that one in every 10 Kenyans belonged to deposit taking sacco which are popular for small time borrowers.

The Sacco Societies Regulatory Authority report showed that assets portfolio for saccos crossed the half-trillion mark to reach Sh556.71 billion in 2019 representing a 12.41 percent increase from Sh495.25 billion in 2018.

The regulator’s report also shows that gross loans portfolio had grown by 12.09 percent to reach Sh419.55 billion in 2019, while the net loans and other credit advances increased by had hit Sh400.16 billion in 2019 from Sh359.02 billion a year earlier.

The coronavirus, however, only came to compound troubles of the saccos which held Sh380.4 billion in deposits. Some companies had begun delaying remittances weakening their financial muscles only leaving them exposed to the covid-19 disruptions.

“As at September 2019, various employer institutions owed saccos a total of Sh3.86 billion in unremitted deductions, out of which Sh3.42 billion were deductions meant for repayments of loans and other credit facilities issued to members by the saccos, with the balance being on account of non-withdrawable deposits,” the regulator wrote in the annual report.

The same scenario is said to have played out for banks reaping big from group lending which have had to forego interests and deposits from the members who stopped meetings during the pandemic and who took comfort in the minimal pressure to contribute for savings or repay loans.

With the social distancing requirement, the pandemic has put to test one of the country’s most successful investment models and a key revenue earner for finance intuitions who gave small unsecured loans to businesses with the security that members co-guaranteed one another.

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