How saccos can drive innovation in home ownership

With financial services institutions  in the vanguard of driving adoption of innovation, artificial intelligence and digital technology, it is time that savings and co-operative societies (saccos) joined the disruption train to increase financial inclusion. 

This is critical, not just because of constraints that Covid-19 has impacted in the world of work, but also because saccos have tools to reach a large number of people both inside and outside formal banking and who feel that financial services available in the market are either highly priced or not tailored to meet their needs.

One way of adapting sacco services with members’ needs would include plugging into the Big Four Agenda so that they can offer products and services that help ordinary citizens take advantage of incentives offered by government, say for home ownership through the affordable homes programme. 

For instance, more saccos should be encouraged to sign up with the Kenya Mortgage Refinance Company (KMRC).

By so doing, they will empower their members to own homes at affordable costs since one requirement for home loans is that they must be lent at single digit interest rates.

Already, deposit taking institutions like Stima Sacco have embraced the programme, offering loans at nine per cent.

This is much lower than mortgage rates offered by banks. If scaled up, this programme has potential to reduce Kenya’s homes deficit, which currently stands at over 250,000 annually.

It says a lot about the cost of building and buying homes when only 50,000 units are built annually in a population that is close to 50 million.

If this trend is not checked, Kenya’s housing shortage will become more acute given that rural-urban migration trends are increasing the number of people living and working in towns year-on-year.

All of these people will need decent housing and this is where saccos can step in, first by encouraging young workers to sign up for membership early in their careers.

That way, they will start saving early, thus building a nest egg that can be unlocked after a few years to fund initial costs of home ownership in urban areas.

Already, some saccos have been identifying property in suburbs with prospects for future growth, encouraging their members to buy parcels on which they can live once infrastructure like water, roads and electricity are in place.

There is much to be said for such simple but far-reaching innovations. Besides engendering a savings culture, particularly among young people, saccos will help the country grow its savings base to above the 30 per cent of combined incomes as recommended under international standards.

Although Kenya has been doing relatively well compared to other countries in East Africa, it still falls short by about five per cent.

Once a new crop of homeowners start taking advantage of incentives offered by government – such as tax reliefs offered by the 2018 Finance Act – they can convert money initially consumed by rent into savings.

By leveraging on such savings to encourage home ownership in urban areas, saccos can help solve the problem of regional fragmentation because home owners will no longer feel the need to build upcountry.

This, from a political and cultural point of view, is beneficial because it will make voting blocs more cosmopolitan while reducing population pressure on rural areas where much of food crop agriculture is practiced.

The free land upcountry can be harnessed to feed workers in towns, thus building a robust 21st century economy.

It is important to mention that home ownership is not only good for the economy in the sense that it creates and sustains supply chains, capital gains and jobs.

It is also good for private satisfaction and family happiness. Research suggests that children who live in homes their parents own are more likely to perform better in school, because they are more rooted and have a sense of security and stability.

Even for the investors, knowing that you own a property whose value keeps growing every year is also satisfying. Collectively, this can increase Gross National Happiness.

It is important to note too that since 2004, property prices have appreciated by about 100 per cent. By extension, such gains can be extrapolated into the future.

Saccos, therefore, ought to position themselves at the very heart of these trends by designing products and services that help members reach important long-term goals such as owning a home.— The writer is a Partner and Head of Content at House of Romford — Mbugua@houseofromford.com