Automation of SACCOs - FSD Kenya

16 • AUTOMATION OF SACCOS: ASSESSMENT OF POTENTIAL SOLUTIONS
Chapter 4
requirementS gAthering AnD buSineSS
AnAlySiS
4.1 FIELD VISIT oBSErVATIonS
The project team carried out visits to five SACCOs in four different towns and
one city across four provinces. 6 The institutions visited proved to be diverse in
several aspects and provided insight to different versions of the SACCO model.
The project team got practically unlimited access to the senior management
teams and could hold the necessary meetings without restrictions.
Due to the pattern of required features that evolved as expected the project
team regards the 190 requirements captured as a comprehensive and
practically exhaustive list. It is unlikely that any additional requirements would
significantly alter the outcome of any evaluation of available automation
solutions.
The outcome of the field visits is provided in three sections: the first describes
a number of ‘experiences’ of specific conditions at the SACCOs that are very
important to understand as they have a direct bearing on the probability of
a successful acquisition, implementation and operation of a new application.
This recommendation does not claim to fully exhaust these topics but primarily
create awareness and a starting point for mitigation. The majority of the
SACCOs did not have a capacity to directly articulate business requirements. In
the interviews they would rather explain how business is done and leave it to
the project team to analyse this information and articulate the requirements.
Thus are these experiences pre-requisites and a relevant context. Secondly,
the actual functional and technical requirements are described and thirdly,
a number of potential business process and operating model improvement
opportunities are listed.
4.1.1 Decision making rationale
SACCO strategy and decision making process are highly relevant context for
this project as the system needs to be aligned with the strategy and support
each executive in their decisions.
We have observed three issues with regards to these topics that could result in
SACCOs acquiring a less than optimal or even directly unsuitable system and
prevent them from getting the full benefit from the investment.
Firstly the project team has observed that nepotism is prevalent in the
movement. Executives do not base decisions solely on the factors that one
would expect given the SACCO operations but also very much relationships.
E.g. not only or even primarily operational fit and suitability, cash flow, profit,
risk management and outreach to the community but they would also consider
or set as a prerequisite if a board candidate, executive manager or supplier has
a relationship to powerful entities in the Kenyan society and if they personally
know the person. A relationship with e.g. a vendor provides tangible benefits
such as increased transparency and predictability but they are unlikely to be
6 Central, Rift Valley, Eastern and Nairobi Province.
more important than the operating, technical and financial aspects of the
system. Even more importantly decision deviating from the explicit strategy
of the SACCO and with no clear business logic creates significant confusion and
undermines employee morale.
It will also be very difficult to articulate objectives and set targets for the
automation project that are aligned with the rest of the SACCO if the acquisition
decision is not aligned with the explicit strategy and requirements for the
system. E.g. if the system does not fulfil the requirements for loan issuing
how can the corresponding manager be held responsible for the efficiency
gains and delinquency decrease expected from the investment in the system?
Relationships appear to compensate for a lack of competence. When a manager
or board is unable to make a proper assessment and negotiate a contract that
protects the SACCO’s interest they rather deal with someone they know. The
project team sees any discrepancy between the actions of the board and the
executive management respectively the explicit strategy and objectives of the
SACCO as a major risk to a successful acquisition and utilisation of the system.
The logic of decisions will become a highly relevant topic as the regulations
trigger not only the need for investments in technical infrastructure but also a
review of the fundamental financial viability and competitiveness of SACCOs.
In many locations the market is already heavily fragmented and members
would benefit significantly from economies of scale created by consolidation.
These benefits will increase as SACCOs have to carry the cost of IT systems.
Quality systems are associated with minimum costs but can handle significant
volume. Consequently, small SACCOs will struggle to achieve an attractive
return on investment whereas larger SACCOs can leverage the scalability
and also fully utilise advanced functionality. However, consolidation leads to
a lower number of SACCOs and significant redundancy. Junior staff who can
adapt to the computerised environment are not likely to be redundant as the IT
systems will facilitate growth of the entire SACCO industry through increased
outreach and thus more business. However, the number of board members
can be reduced as the number of institutions and boards are decreased.
The second observation is that there is a contradictory paradigm on an
operational level by which members are considered to have rights to get
loans even when they do not fulfil eligibility criteria and clearly would risk
reducing the surplus available as dividends to other members and in the long
run the sustainability and capital of the institution. This behaviour implies
that one member is more important than another and is likely to originate
in a combination of lack of understanding of asset liability management and
empathy with or pressure from the applicant in need of capital. The project
team sees an opportunity to use information from the system to train staff in
ALM, to use the rigour of automated processes to enforce policy, document
deviation from policy and hold decision makers accountable and to reward the
intended behaviour.