Automation of SACCOs - FSD Kenya

14 • AUTOMATION OF SACCOS: ASSESSMENT OF POTENTIAL SOLUTIONS
short term. For the investments that are made a number of criteria need to be
fulfilled and the management needs to monitor them.
Monitor diversification and concentration risk.
Monitor who makes the investment decision in order to ensure that only
competent personnel have a decisive influence.
Monitor the ratio of non-earning and non-current assets to total assets.
Monitor the proportion of land and buildings to total assets.
Financial assets in proportion to core capital and total assets.
Provide dedicated ledgers to each investment.
Ensure that investments do not exceed appropriate portion of core
capital or deposits.
3.4.3 Liquidity
The SACCO will need to be able to manage liquidity through a profound
understanding of drivers of cash flow and the balance between assets and
liabilities. The cornerstone of liquidity management is cash flow forecasting
that enables the SACCO to prevent unnecessary opportunity costs due to idle
capital and to plan for contingencies.
The SACCO is also expected to implement internal controls to proactively
manage liquidity:
Restricted access to funds.
Enforce minimum/maximum cash levels stipulated by liquidity policies.
Maintain a certain level of liquid assets in proportion to deposits.
Report average holdings and lending across the SACCO for sub-units as
required
3.4.4 Governance
Governance is the area we expect will produce the least direct requirements
on the system. Governance is primarily a people and process issue that does
not interact with the system. Our understanding is that the key concern of
the regulator is to ensure that competent people are elected to manage the
SACCOs, that the process to elect and evaluate them is fair and transparent and
that a logical management structure, from member to the board of directors
to executive management, is put in place.
With regards to election and evaluation we primarily see that the system
can contribute by providing information about decisions made and the
subsequent outcome in order to evaluate and hold accountable. To do this the
system would need to capture data and be configured to report corresponding
to the information needs of the bodies stipulated in the regulation. These
requirements are most likely financial or operative performance reporting
requirements similar to or even sub segments of the operative requirements
and will be described in-depth below.
With regards to a management structure required by regulation this could
form more specific and unique requirements. We are considering how the
supervisory bodies interact with the executive bodies and the need to provide
them with information to monitor and make decisions. For example, any system
should be able to provide a board credit committee with information about
the new applications in general as well as specific information about individual
high-value applications where their decision might even be formally required.
With regards to this example it would also be highly relevant to document
‘who makes approval and rejection decisions’, applications eligibility given the
formal appraisal criteria and on what grounds any deviation from the formal
process or the recommendation of various loans officers is overruled.
Produce timely and accurate reports enabling executive management
and the board to report to the annual shareholder assembly (AGM) as
well as to monitor the business on an ongoing basis and engage with
specific operative issues that require escalation to board level.
Provide an audit trail for all decisions made that have a financial effect
enabling enforcement of the governance structure and upholding
accountability.
Provide a workflow system to efficiently circulate information required
to make operative decisions and capture the decisions.
The scope of the reports required by the board and management for these
purposes includes:
Financial statements with budget deviation and trend analysis.
Capital structure detailing each capital tier.
Loan portfolio performance with delinquent loan list and in particular
growth in loans, loan losses, recoveries and provisioning.
Liquidity & credit risk measures.
Disclosure of sources for deposits and savings.
Insider lending report.
Investment portfolio performance.
All regulatory reports.
3.4.5 risk management
In addition to optimising how the credit operations create value for members
and borrowers the management also need manage the risks the SACCO is
exposed through these activities. The credit operations include efficiently
offering sought after products at competitive rates and returning an attractive