A comparative study of the performance of Savings and Credit Co-operatives (SACCOs) in Kenya and South Africa from mid-1990s to 2023

Abstract

“Despite being active in the last 25 years, financial cooperatives serve only 29,500 members out of 40 million adults in South Africa – a number that has remained relatively flat (0.7% annual growth) over the past decade” (World Bank Group, 2021, p. 8).

This study investigates factors that may have contributed to the poor performance of co-operative financial institutions (CFIs) and co-operative banks (CBs) in South Africa, with a focus on ‘exogenous factors’ – factors beyond the control of the CFIs and CBs. It takes a ‘big picture’ or ‘macro’ approach, and considers the following exogenous factors: the history of the country, the role played by government, political factors, existing institutions, and the laws and regulations governing the sector. A comparison is made with the performance of savings and credit co-operatives (SACCOs) in Kenya, with a view to investigating whether any lessons can be drawn from the success story of SACCOs in Kenya. SACCOs in Kenya are the best performing in Africa and compete globally. The research is intended to contribute to existing literature and knowledge on the CFI and CB sector in South Africa and contribute to debate and inform policy. The methodology used is autoethnography. It draws on multiple data sources, namely, a questionnaire, interviews, observations, focused discussions with selected stakeholders associated with CFIs and CBs, case studies, and desktop research.

Results suggest that Kenya has the big-picture approach right, and it has addressed exogenous factors pertaining to co-operatives from the onset, resulting in a strong foundation being laid. The timing was opportune for Kenya, as many African countries were following African socialist political ideology, which was in support of co-operation and solidarity and therefore co-operatives. Government of Kenya also implemented deliberate policy interventions that supported co-operatives. It created favourable and conducive conditions for SACCOs and co-operatives, in general, to perform optimally and succeed.

In South Africa, the democratic government adopted and implemented neoliberal macroeconomic policies after gaining power in 1994. Those policies were not in support of co-operatives. Government collaborated with owners of capital to raise much-needed funding in an attempt to address the imbalances of the past. Government of South Africa did not get the big picture right and did not address exogenous factors. Results suggest that exogenous factors may have contributed to the poor performance of the CFI and CB sector in South Africa, particularly the adoption of neoliberal economic policies. Other contributing factors include the inability of CFIs and CBs to compete with existing financial institutions, loopholes in the laws and regulations that govern co-operatives, and policy inconsistencies and contradictions, which may bring negative unintended consequences to the performance of CFIs and CBs.

Many lessons can be drawn from the success story of SACCOs in Kenya. However, country-specific circumstances of South Africa should be considered in drawing those lessons.