iv • AUTOMATION OF SACCOS: ASSESSMENT OF POTENTIAL SOLUTIONS
exeCutive SummAry Financial Sector Deepening (<strong>FSD</strong>) <strong>Kenya</strong> recognises the critical role <strong>of</strong> Savings and Credit Cooperatives (<strong>SACCOs</strong>) in providing access to financial services to low income households in <strong>Kenya</strong>. <strong>SACCOs</strong> are one <strong>of</strong> the leading sources <strong>of</strong> rural finance and in many rural areas the local SACCO is the only provider <strong>of</strong> financial services. While the exact number <strong>of</strong> <strong>SACCOs</strong> operating in <strong>Kenya</strong> is not known, estimates range from almost 4,000 up to 5,000. About 200 <strong>of</strong> these are considered deposit-taking <strong>SACCOs</strong>, <strong>of</strong>fering front <strong>of</strong>fice savings activities (FOSA). Efforts have been undertaken by the <strong>Kenya</strong>n Ministry <strong>of</strong> Cooperative Development and Marketing (MoCDM) to reform the enabling environment for <strong>SACCOs</strong>. The SACCO Societies Act 2008, which passed into law at the end <strong>of</strong> last year, will require deposit-taking <strong>SACCOs</strong> to meet strong regulatory standards. The new regulations are expected to be gazetted in early 2010, hence there is an urgent need to significantly reform the 200 <strong>SACCOs</strong> <strong>of</strong>fering FOSA. As technology is deemed a main enabler <strong>of</strong> compliance, <strong>FSD</strong> <strong>Kenya</strong> commissioned the SACCO <strong>Automation</strong> project with the objective to identify viable automation solutions for <strong>SACCOs</strong>. More robust management information systems will enable <strong>SACCOs</strong> to manage their operations more efficiently, manage growth, and generate reliable reports for both management and the forthcoming regulatory authority. The focus was on <strong>SACCOs</strong> <strong>of</strong>fering FOSA as they will be the first to be targeted by the upcoming regulation under the SACCO Societies Act 2008. The solutions needed to meet the <strong>SACCOs</strong> business as well as technical requirements, consider the constraints <strong>SACCOs</strong> are facing with regard to e.g. staff capacity and budget, and improve the quality and timeliness <strong>of</strong> their management information. To be in a position to recommend viable automation solutions, the project team needed to understand the <strong>SACCOs</strong>’ business processes and circumstances and translate them into system requirements. The project team thus visited five <strong>SACCOs</strong> and captured requirements across the complete SACCO operating model, including FOSA, BOSA (back <strong>of</strong>fice savings activities), accounting and finance, human resources, internal audit, and marketing departments. In addition to gathering requirements from analysing <strong>SACCOs</strong>’ business processes, the project team analysed the anticipated regulatory requirements to assess their impact on the selection <strong>of</strong> potential systems. In choosing the sample <strong>SACCOs</strong> the project team paid attention to obtaining a well balanced mix between different SACCO characteristics. The selection needed to include urban and rural <strong>SACCOs</strong>, employer-based and farmer-based <strong>SACCOs</strong>, as well as small and large <strong>SACCOs</strong> as it was assumed that, while all <strong>SACCOs</strong> have many common core requirements, each also has unique requirements corresponding to its segment and specific product <strong>of</strong>fering. This approach ensured that the project team captured a comprehensive set <strong>of</strong> requirements that was likely to cover the needs <strong>of</strong> the approximate 200 FOSA <strong>SACCOs</strong> and present a robust basis for the automation decision. The outcome AUTOMATION OF SACCOS: ASSESSMENT OF POTENTIAL SOLUTIONS • v was a list <strong>of</strong> 190 functional and technical requirements. While the different SACCO characteristics provided a range <strong>of</strong> requirements, they were not found to be as relevant as initially assumed when selecting an application. Trends such as more inclusive criteria for membership as well as more sophisticated and comprehensive customer requests amplify the convergence towards a common set <strong>of</strong> requirements. For system selection, every SACCO will need to consider each requirement and decide on its relevance as well as its priority in their specific context. The next step was to identify automation solutions available in the market and assess their suitability. Several sources were reviewed to compile a list <strong>of</strong> vendors. After having screened the solutions for minimum requirements, 26 <strong>of</strong> initially 46 vendors were invited to provide more details about the specific properties <strong>of</strong> their <strong>of</strong>fering through a request for information (RFI). Based on the responses, the project team finally short-listed six vendors for the final round <strong>of</strong> in-depth screening which took place in the form <strong>of</strong> system demonstrations. The final selection <strong>of</strong> vendors was a mix <strong>of</strong> domestic <strong>Kenya</strong>n vendors with a deep knowledge <strong>of</strong> <strong>Kenya</strong>n <strong>SACCOs</strong> and a strong presence in <strong>Kenya</strong> (Craft Silicon, Fintech), foreign vendors that have developed micr<strong>of</strong>inance or credit union applications and could draw on significant international experience from their commercial banking applications (Fern, Neptune, Temenos), as well as local vendors who were expected to provide more cost efficient solutions (Amtech). Consolidation <strong>of</strong> information gathered during the demonstrations proved that some functionality was provided by all solutions, hence it could not be considered as strength <strong>of</strong> a particular solution. This functionality was considered as “viable solution minimum” and represented requirements every viable solution needed to fulfil. Following the definition <strong>of</strong> this minimum, individual strengths and weaknesses could be noted. Every feature above and beyond the minimum requirements was recorded as a strength for the particular solution. A weakness was noted if a solution could not meet the “viable solution minimum” or if some severe shortcoming had been observed. In addition to individual shortcomings, some common weaknesses were noted, i.e. some functionality was not <strong>of</strong>fered by any <strong>of</strong> the solutions. Apart from the solutions’ functionality and the vendors’ support structure, it was important to understand the price level <strong>of</strong> the individual solutions. The project team therefore asked the vendors to provide cost estimates for two standard <strong>SACCOs</strong>, broken down into licence, implementation, training, and annual maintenance cost. While the vendors would obviously need to study business requirements case by case to quote an exact price, the cost estimates could serve as rough indication and help to understand in which price category a solution falls. Based on the findings, the project team provided recommendations for how <strong>SACCOs</strong> preparing for regulation, can automate appropriately. Strategic options