Kenyan sacco members will soon have an added advantage of using movable properties such as vehicles, livestock, machinery and electronics as security for their loans in a new push by the state to widen the pool of acceptable collaterals.

 

The Sacco Societies Regulatory Authority (Sasra) is working on implementation of a collateral registry, which it says will help expand the membership of the savings and credit co-operative societies and boost credit growth by increasing the number of acceptable loan securities beyond the conventional guarantorship model.“The collateral registry in our view will increase member outreach and credit growth by increasing acceptable securities beyond the conventional guarantorship while standardising securitisation of acceptable collaterals for loans,” the authority’s acting chief executive David Sandagi told The EastAfrican on December 31.

A collateral registry is a public, online database for lenders to record security interests (claims) on a borrower’s movable assets.

In Kenya, movable properties include items such as vehicles, livestock, machinery, furniture, electronics, crops, jewellery, and cash, plus intangible assets such as receivables (money owed), bank deposits, and intellectual property (trademarks, copyrights).

The registry is expected to lower credit risk for saccos and allow them to lend more to Small and Medium-sized Enterprises (SMEs), and individuals.

Under the proposed arrangement a sacco will register its interest in the specific movable asset (collateral) on the registry when providing a loan. The registry establishes the priority of claims whereby the first lender to register usually has the claim if a borrower defaults.

Kenya’s Business Registration Service (BRS) manages the Movable Property Security Rights (MPSR) Registry— the official government list of security rights in movable property — a key tool for securing credit.

Collateral registry allows lenders to check if an asset is already pledged and protects their rights by making their claim public, enabling borrowers to use assets they own as security without giving up possession.

Sasra through a sacco sub-sector report released in November has recommended promotion of the collateral registry as a form of security in lending.“Saccos are also changing how they secure loans. There’s been a noticeable decline in the use of traditional forms of security like land or houses, which decreased from 3.47 percent to 1.34 percent. Similarly, using household assets as collateral has become less common, dropping from 2.41 percent to 0.87 percent,” the report says.

According to the report use of guarantors for loan security increased from 42.76 percent in 2019 to 53.52 percent in 2024 while loans secured by salary or income saw a moderate rise from 21.13 percent to 26.19 percent in the same period. In a sacco, a guarantor is a member who co-signs a loan, taking responsibility for its repayment if the primary borrower fails to meet their obligations.

Guarantors typically pledge their own deposits as collateral. If a loan is defaulted, the sacco will notify the guarantors of their intent to recover the outstanding amount from them.

If the situation isn’t resolved, guarantors become jointly and individually liable for the defaulted loan.

The sacco can then recover the amount by offsetting it against their deposits or by attaching their property or salary until the debt is cleared.

This is because these options offer saccos a more straightforward way to recover defaulted loans, compared to the often lengthy, complex, and costly process of selling land or real estate properties.“This preference is evident in the decrease in the use of land or houses as collateral, which fell from 3.47 percent in 2021 to 1.34 percent in 2024,” the report says. It notes that use of household assets such as TV, fridges as security also decreased from 2.41 percent in 2021 to 0.87 percent in 2024 largely due to the lack of a readily established market for selling household assets, making it difficult to determine their value.“Moreover, loans requiring no security sharply declined from 16.3 percent to 10.61 percent, indicating that lending standards across the sector are becoming stricter,” says report..

The average loan value for a segment of sacco members rebounded from Ksh187,883 ($1,456.45) in 2021 to Ksh316,538 ($2,453.78) in 2024, surpassing pre-pandemic levels, indicating increased demand for larger loans alongside widening disparities in credit distribution.

Saccos play a crucial role in helping members address different financial challenges including education, land and housing.

Last year (2024) regulated saccos mobilised an accumulated savings deposits amounting to Ksh126.83 billion ($983.17 million) from Ksh115.17 billion ($892.79 million) in 2023 which constituted 17 percent respectively of the total deposit liabilities mobilised by all regulated saccos.“In contrast, Saccos and microfinance institutions maintain stricter controls, resulting in fewer defaults. Commercial banks, while more regulated than mobile banks, still face moderate default risks, reflecting their broader customer base and varied lending practices,” the report says.

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