Automation of SACCOs - FSD Kenya

Chapter 1
introDuCtion
1.1 ConTEXT
FSD Kenya is an independent trust established to support the development of
inclusive financial markets in Kenya as a means to stimulate wealth creation
and reduce poverty. Working in partnership with a diverse range of financial
institutions, business service providers, and support institutions, the goal of
FSD Kenya is to significantly expand access to financial services among lower
income households and smaller scale enterprises by developing the capacity
of the financial services industry.
FSD recognises the critical role of SACCOs in providing access to financial
services to low income households in Kenya. The FinAccess 2009 study
undertaken by FSD indicates that SACCOs are one of the leading sources of
rural finance and in many rural areas the local SACCO is the only provider of
financial services. While the exact number of SACCOs operating in Kenya is not
known, estimates range from almost 4,000 up to 5,000. About 200 of these
are considered deposit-taking SACCOs, offering front office savings activities.
Efforts have been undertaken by the Kenyan Ministry of Cooperative
Development and Marketing to reform the enabling environment for SACCOs.
The SACCO Societies Act 2008 passed into law at the end of last year. It will
require deposit-taking SACCOs to meet strong new regulatory standards.
A task force of industry stake holders has been constituted by MoCDM to
draft the new regulatory framework, focusing on the establishment of the
new SACCO Societies Regulatory Authority (SASRA). As the new regulations
are expected to be gazetted early 2010, there is now an urgent need for
significantly reforming the estimated 200 SACCOs offering FOSA.
Technology is considered a main enabler of compliance. More robust
management information systems will enable SACCOs to manage their
operations more efficiently, manage growth, and generate reliable reports for
both management and the forthcoming regulatory authority. While studies
have taken place to identify potential information technology (IT) solutions that
could meet the needs of SACCOs, there has not yet been a thorough analysis
of the strengths and weaknesses of these solutions, nor an opportunity to test
the solutions in a live setting or to assess potential implementation challenges.
As such, FSD has contracted Accenture Development Partnerships (ADP) to
undertake an analysis of automation options available to SACCOs with the aim
of identifying ways to improve automation and increase transparency across
the sector.
1.2 ProJECT oBJECTIVES
The overall objective for this project is to identify viable automation solutions
for SACCOs. Within the heterogeneous group of SACCOs, the focus is on midsized
to large SACCOs with FOSAs as they will be the first to be targeted by
regulation.
AUTOMATION OF SACCOS: ASSESSMENT OF POTENTIAL SOLUTIONS • 1
The automation solutions shall:
meet business as well as technical system requirements of the SACCOs,
consider the constraints SACCOs are facing (i.e. staff capacity, information
technology literacy, budget, connectivity),
improve the quality and timeliness of their management information
and thus help SACCOs prepare for forthcoming regulatory requirements.
To recommend viable automation solutions, the requirements for potential
systems needed to be gathered in the first place. SACCOs’ business processes
and circumstances had to be clearly understood and then translated into
requirements. Also, the likely regulatory requirements were reviewed to
understand their impact on the selection of potential systems. Once a clear
set of functional as well as technical requirements had been developed, the
next step was to identify automation solutions available in the market and
assess their viability. Based on analysis of the results, recommendations were
provided on appropriate ways to tackle automation by SACCOs preparing for
regulation.
1.3 PrELIMInArY ProJECTS
Apart from the SACCO Automation project commissioned by FSD, two main
evaluations of available SACCO software have taken place in recent years.
In 2007, the World Council of Credit Unions (WOCCU) Kenya went through
a software evaluation exercise within their SACCO Growth project. WOCCU
had raised funds to support the implementation of new systems in selected
SACCOs to help them grow their membership. To solicit for SACCO software
proposals from local vendors, WOCCU placed a paid advertisement in the
Daily Nation. Out of 19 initial responses three vendors were finally short-listed,
namely Fintech, Craft Silicon, and CoreTec. They were requested to familiarise
themselves with the five SACCOs taking part in the project and provide financial
proposals accordingly. It was Fintech and Craft Silicon who were finally chosen
to partner with WOCCU and the selected SACCOs for implementation.
Another software evaluation project was initiated by Co-operative Bank,
which has been providing capacity building services to the SACCO sector. Cooperative
Bank, in close collaboration with MoCDM, invited proposals from
system vendors in late 2008. A total of 25 proposals were received and 14 of
these short-listed. The selected vendors are expected to hold demonstrations
of their solutions and based on these recommendations will be made to the
SACCOs.
The conclusions from the WOCCU project have been taken into consideration. At
the time of undertaking the analysis the Co-op Bank study was still in progress
and consequently not available to the project team. The information above has
been used to understand which vendors were available on the Kenyan market
at that time and to take part of practical experience from system selection and
implementation in the SACCO sector.