Savings and Credit Cooperative Societies (SACCOs) are instrumental in Kenya’s financial sector, serving as a crucial platform for delivering financial services to millions of Kenyans. Over time, these SACCOs have cultivated a reputation for their exceptional financial provisions, enabling them to extend their reach to both urban and rural areas. Their contributions span from fostering a savings culture to enhancing credit accessibility, thereby playing pivotal roles in economic development, agricultural progress, job creation, and poverty reduction.
Originating in 1908, cooperative societies have ever since been evolving becoming pillars of financial inclusivity and socio-economic empowerment. According to a state’s cooperative department report, 22,000 SACCOs had been registered in Kenya by 2017 with over fourteen million members and were attributed to over 30% of Kenya’s GDP. Currently, they have achieved over Kes. 732 billion in deposits and over Kes. 1 trillion in assets.
However, despite these achievements, SACCOs have experienced several risks coupled by the risk of financial losses, an increase in uncertainty about their financial and operational objectives, strategic risks due to changes in leadership, reputational damages and inadequate cash flows which hinders the achievement of their strategic goals. The challenges are further compounded by technological risks due to rapid advancement in technology and credit risks which may result in inadequate funds to satisfy their members’ credit needs. This is a result of escalation in loan defaulters, poor management and misappropriation of funds. Major contributors to risks have been identified, such as lack of robust proper policies and procedures, non-compliance to legal and regulatory requirements, lack of internal audits, weak internal controls, poor corporate governance, communication breakdowns and insufficient of insurance coverage against possible risks.
To maintain their stability and address these risks, SACCOs have had to engage in robust innovation through the adoption of current technologies such as predictive analytics.
Predictive analytics integrates data mining, which involves sorting and analyzing large set of raw data in order to uncover patterns that can help solve business problems; statistical modeling, which estimates reality and correlations between random and non-random variables within a set of data, and machine learning, which goes a long way to enable software applications to accurately predict outcomes without being programmed.
Predictive analytics offers several benefits in risk mitigation for SACCOs:
- Credit Scoring:
By harnessing extensive data, predictive analytics replaces manual processes, which are time-consuming, labor-intensive and prone to human error with efficient assessment of SACCO members’ creditworthiness. This enhances risk management in SACCOs and reduces the likelihood of non-performing loans.
- Customer Segmentation and Personalization:
Predictive analytics has enabled SACCOs differentiate themselves by offering tailored products and services to their members. This is done through segmentation of members based on factors such as demographics, transaction history and behavioral patterns
- Fraud Detection and Prevention:
Predictive analytics identifies complex and evolving fraud schemes through its prowess in analyzing large volumes of transaction data in real-time, spotting unusual patterns in processes and minimizing the possibility of occurrence of fraudulent activities.
- Operational Efficiency:
Automation of routine tasks, error reduction, and optimal resource allocation are achieved through predictive analytics, leading to streamlined SACCO operations.
- Data-driven decision-making:
By collecting, analyzing, and visualizing data from various sources, predictive analytics empowers SACCOs to make well-informed decisions.
Adopting predictive analytics is a strategic move that enhances the operations of Kenyan SACCOs. By leveraging this technology, SACCOs can reinforce risk management, strengthen fraud detection, increase operational efficiency, and make informed, data-driven decisions. This not only ensures their competitive edge in the ever-evolving financial landscape but also cements their role as vital contributors to Kenya’s economic growth and development.