Data from the State Department of Cooperatives showed that savings in Savings and Credit Cooperative Organisations (SACCOs) grew by 15.6% to 1.047 trillion from 906 billion as of December 2023. This is a major milestone for the country’s push for financial inclusion. This growth was attributed to improved member confidence and the adoption of digital channels by SACCOs.

In contrast, the Competition Authority of Kenya (CAK), in its annual report has lamented that SACCOs are impeding members’ exits and retaining their deposits against their will. Concerns have also arisen particularly as to how SACCOs have made it quite difficult to access their yearly financial statements. This mixed account of events ideally points to a laxity in the regulatory framework.

Unlike traditional financial institutions, SACCOs operate on principles of self-help and mutual assistance, fostering a sense of community and solidarity among their members. By mobilising savings, granting loans, and offering other financial products tailored to the needs of their members, SACCOs contribute significantly to poverty alleviation and economic development.

However, in the rapidly evolving digital age, the regulatory framework governing SACCOs in Kenya needs to be reinforced to adapt to the changing dynamics and leverage the opportunities presented by digital innovations. The review of the regulatory framework needs to not only appreciate the digital age but also appreciate and aim to remedy the numerous challenges that have continued to impede the effectiveness of SACCOs in meeting their cardinal goal of financial inclusion. Regulation is essentially needed to mitigate the inadequacies due to the existing governance structures, to secure member welfare. The rapid proliferation and disruptive nature of technology present both opportunities and challenges for SACCOs, necessitating a robust regulatory framework to harness the potential benefits while mitigating risks.

The advent of digital technology has revolutionised the landscape of financial services, offering unprecedented opportunities to expand access, reduce costs, and enhance efficiency. Mobile money, digital payments, and fintech innovations have emerged as powerful tools for reaching unbanked and underserved populations, overcoming geographical barriers, and streamlining financial transactions. In many developing countries like Kenya, mobile money platforms, for instance, M-PESA, have increasingly become ubiquitous, providing a convenient and secure means of conducting financial transactions even in remote areas.

The embrace of digital transformation by SACCOs brings significant benefits. It not only improves member engagement, enhances operational efficiency, and expands outreach but also enables SACCOs to leverage data analytics for risk assessment, customer profiling, and personalised service delivery. This enhances their competitiveness and sustainability.

Notwithstanding the advantages, the digitalisation of financial services also comes with its own fair share of challenges and risks. These risks, including cybersecurity threats, data privacy concerns, and regulatory complexities, exemplify the essence of regulatory review. SACCOs must adequately find ways to navigate these challenges effectively to harness the full potential of digital innovations while safeguarding the interests of their members and maintaining the integrity of the financial system.

Considering the evolving digital landscape and the growing importance of SACCOs in promoting financial inclusion, there is a pressing need to strengthen the regulatory framework governing these institutions. A robust regulatory framework serves as the cornerstone of a healthy and resilient financial sector, providing the necessary oversight, guidance, and consumer protection mechanisms.

To begin with, regulatory authorities must ensure regulatory frameworks cause SACCOs to operate within a clear and transparent legal framework that fosters accountability, integrity, and sound governance practices. This includes licensing requirements, prudential regulations, and reporting standards tailored to the size, complexity, and risk profile of SACCOs. Regulatory authorities should also promote market conduct regulations to safeguard consumer rights, prevent abuse, and enhance transparency in SACCO operations.

In the same vein, regulatory frameworks should also adapt to the dynamic nature of digital financial services, addressing emerging risks such as cyber threats, data breaches, and money laundering activities. Stringent cybersecurity requirements, including encryption standards, multi-factor authentication, and regular vulnerability assessments, should be put in place to govern SACCOs, safeguard their systems and protect sensitive financial information.

Fundamentally, regulators should encourage innovation and experimentation in digital finance while ensuring compliance with applicable laws and regulations. Regulatory sandboxes, pilot programmes, and collaboration platforms can facilitate dialogue between regulators, industry stakeholders, and innovators to promote responsible innovation and mitigate potential risks.

In conclusion, strengthening the regulatory framework governing SACCOs is essential to drive financial inclusion in the digital age. SACCOs play a vital role in extending financial services to underserved populations, and digital innovations offer unprecedented opportunities to enhance their effectiveness and outreach. However, realising the full potential of SACCOs requires a conducive regulatory environment that fosters innovation, ensures sound governance practices, and protects consumer interests. By reinforcing the regulatory framework, the Saccos Regulatory Authority (SASRA) can promote a vibrant and inclusive SACCO sector that contributes to sustainable development and economic empowerment for all.