We take you through three major differences: technology, interest rates, and regulation. In the end, you should be able to make an informed decision, whether you’re planning to save, invest or borrow.
The differences between banks and SACCOs in Kenya
In the digital age, convenience is what every person seeks. Customers want to access all their financial transactions from the comfort of their offices, or homes. A good financial institution should provide highly interactive and user-friendly solutions to meet everyone’s needs, including those that are less tech-savvy.
The difference in Technology
Banks: For a long time, banks have been on the front-line to adapt and embrace new technology. Top banks use biometrics to make security robust. They use Artificial Intelligence to improve their solutions. They also deploy Internet of Things on a small scale for customer satisfaction.
SACCOs: Most SACCOs lag behind in technology. They depend on the traditional system to execute their solutions. However, some are positioned to be the next frontiers in the Kenyan financial sector. Mombo is one such SACCO. Like banks, they integrate advanced technology to deliver high-end solutions to their diverse clients. And better than most banks, they cut out the need for paper banking, which makes their solutions convenient and eco-friendly.
When a person saves, they want the assurance that their money is safe. As such, it’s important for them to know that a trusted agency regulates the institution they’re working with. Banks and SACCOs in Kenya work under different bodies. These agencies function to accomplish the same goals – protect clients
The difference in regulation
Banks : Banks are licensed and regulated by the Central Bank of Kenya. Equity and National Bank are examples of banks in Kenya.
SACCOs: There are two types of Financial SACCOs in Kenya, each presenting a set of incredible benefits. There is the FOSA – Front Office Services Activity and BOSA – Back Office Services Activity.
FOSA SACCOs are more or less like traditional banks, and lets members access their savings over the counter. However, they are not a clearing agent with the CBK and can only clear through a bank. FOSA is regulated by the SACCO Societies Regulatory Authority – SASRA. Safaricom is an example of a FOSA SACCO.
BOSA SACCOs are the traditional SACCOs where members save and access credits. Once a person saves their money with BOSA, they cannot withdraw the money until they decide to leave the SACCO. BOSA is regulated by the Commissioner of Cooperatives under the Ministry of Industry, Trade and Cooperatives. Mombo is an example of BOSA SACCO.
BOSA SACCO is the best option for anyone who wants to let their money work for them because the savings continues to grow with time. Members who save with Mombo SACCO, for example, enjoy up to 6% interest on saving.
Before a person takes a loan, they want to know how much money they will pay on top of what they are borrowing. They also want to know how much they will earn if they choose to save their money. The interest rate is the money that the facility charges on top of the loan or add on top of the deposit. These rates are calculated on an annual basis, referred to as the Annual Percentage Rate
The difference in Interest Rates
Banks: For a long time, banks have been charging interest of up to 25% on loans. However, the New Banking Amendment Bill 2015 stipulates that borrowers should be subjected to a fixed rate of 4% or less the base rate set by the CBK. Meaning, the maximum fee that banks charge should be 14.5%
SACCOs: SACCOs offer a reduced rate to gain a competitive edge against traditional banks – especially after the Banking Amendment. Their pricing has kept the interest fees at an average 12%, which is less than the 14.5% that the banks offer.
To some extent, banks and SACCOs in Kenya may offer the same solutions. However, many people prefer to work with the latter because they get more benefits – from lower fees to higher rates, easy access to credit and the best customer service.