The Role of Savings and Credit Cooperative Organisations in Kenya’s Housing Finance Sector

By |2024-01-03T14:58:21+01:00June 11th 2019|Finance, Housing and Construction|

Savings and Credit Cooperative Organisations play a key role for housing security in Kenya. Davina Wood explains how they work and discusses benefits and current challenges.

Like many developing economies, Kenya is facing a huge housing crisis. Blockages on both the supply (e.g. the high cost of development) and the demand side (e.g. informal incomes, expensive mortgage finance) have rendered formal housing inaccessible for the majority of the population.

Over the past two decades, Kenya’s Savings and Credit Cooperative Organizations (SACCOs) and Housing Cooperatives have shown themselves to be innovative and responsive to market conditions and client needs, including housing security. Their importance in the housing sector is now indisputable; the World Bank estimates that up to 90 per cent of the country’s housing finance is supplied by SACCOs and housing cooperative networks.

The SACCO Model

SACCOs are non-profit financial cooperatives owned by their members and governed by a member-elected board of directors. To join, individuals, businesses or savings groups must complete the necessary paperwork and purchase a minimum number of non-refundable shares. They also commit to a minimum monthly savings contribution. Although many SACCOs were originally informal community savings groups, the government’s regulatory framework now covers SACCOs, and once licensed, they are formal financial institutions.

At a minimum, SACCOs offer savings accounts and loans. Deposit-based loans are usually sized at three to four times the amount of the member’s savings held at the SACCO. What makes the model unique is that loans are secured by the members’ deposits, and oftentimes by guarantees from other members too. SACCO loans tend to be cheaper and easier to access than bank loans. SACCOs also pay higher interest rates on savings than Banks, and they pay dividends to all members.

SACCOs rarely extend formal mortgage products due to inherent constraints in their capital structure. Instead, most members finance their housing with short or medium-term project loans, on average ranging from four to six years. These loans are sometimes secured by a charge on property, but often are unsecured. Fortunately, medium term loans work well with incremental build, a common feature of the Kenyan housing landscape.

Deposit-taking SACCOs are not legally permitted to purchase or invest in land because real estate is not considered part of the SACCO model’s core business, but they can and do frequently act like agents, whereby they connect buyers and sellers. They also extend loans that are used to finance the land or house. SACCOs grow their membership base (both parties must be a member of the SACCO), share capital, and loan portfolio by encouraging such transactions. If a SACCO wants to offer real estate investment opportunities to its members, it must form a separate Housing Cooperative.

Housing Cooperatives

Housing Cooperatives do not take deposits or make loans. Rather, they invest in and sell land to their members. Housing Cooperatives will acquire large parcels of land which they divide up into individual parcels of land. Members must put down an initial deposit, usually 25 percent of the sale price, and agree to pay the balance in 90 days. Most members finance the balance by obtaining a loan from the partner SACCO or from a recommended bank. The Housing Cooperative holds the mother title and will not transfer the parcel’s title until it has been fully paid.

In cases where Housing Cooperatives also construct homes, the member must usually put down a 10 per cent deposit and will have three to six months to clear the balance, either with a mortgage or cash. If the house is still off-plan or in construction, then the member may be offered the option to pay in instalments of up to 24 months. Development is often done incrementally according to the amount of capital raised by the Cooperative and by the financial assistance available to its members. Housing Cooperatives rarely develop residential projects entirely on their own, but rather enter into JV agreements with local developers who have construction experience.

Benefits of the Model

The benefits of this model are many. Acquiring large tracts of land versus individual plots results in cost savings that the Housing Cooperatives pass on to their members, making homeownership more affordable. It also opens up the possibility of speculative investing. It is not unheard of for Kenyans in the diaspora or chamas to purchase land through SACCOs or Cooperatives as investment opportunities.

As one agent representing many end-users, the SACCO is also able to get more traction with the government when it comes to the provision of basic infrastructure services such as water, sewer, and electricity. In addition, one of the largest obstacles to acquiring real estate in Kenya is gaining clear title to land. Title issues are both costly and time-consuming, and immensely important in a country with a risk of land grabbing. Housing Cooperatives, however, have the technical knowledge to manage arduous title processes, and they can foot the bill.


The weak points in the model are mainly rooted in access to capital. First of all, the Housing Cooperative must have enough cash on hand to make the initial deposit. Sometimes a Housing Cooperative will have to seek a loan from its partner SACCO, or it will obtain an expensive short-term loan from a commercial bank to bridge the initial payment. And as noted earlier, SACCOs capital structures are reliant on savings, therefore they do not have access to long term funds necessary for tenor matching with mortgage products.

Second of all, there must be enough member interest for the Cooperative to raise the funds it needs to complete the purchase. Finding price points that work can take some trial and error, and rarely do interested members have enough cash on hand to purchase the property outright. This is where the related SACCO once again often comes into play. While a Housing Cooperative cannot provide financing on the land, they can have exclusive financing arrangements with their FOSA SACCO counterpart. Sister SACCOs and Housing Cooperatives frequently source business for each other. Housing Cooperatives will also market their projects to other, unrelated SACCOs.

Whether or how long it takes for a member to obtain financing is essential as it directly impacts the success of a project. Economies of scale cannot be fully realized if resources are not pooled in an adequate and coordinated manner, and construction delays are often caused by members’ inability to honour payment terms. Another frequently cited challenge for Housing Cooperatives is the development cost, which makes it very difficult for them to build homes that are affordable to low-income households.

Finally, a closer look at internal procedures and capacity indicates that the sector must institute changes, such as more rigorous training, credit risk systems and corporate governance, in order to remain viable over the long term and to best serve their members.

Whether SACCOs and Housing Cooperatives continue to grow into robust, profitable and well-run organisations remains to be seen, but the outlook is positive. The industry has government buy-in, which is essential, and Kenya’s broader economics makes it one of Africa’s more compelling investment opportunities. The government’s commitment to provide one million homes by 2022 will further solidify the Cooperative sector’s role in housing finance, making it even more likely that key stakeholders will continue to foster best business practices and encourage outside investment.

The sector’s track-record also speaks for itself. SACCOs have evolved from non-profit organisations motivated by social missions to commercially savvy enterprises, and they have managed to remain responsive to their members’ needs along the way. Not only Kenya, but also other African nations with similar savings cooperatives, will benefit immensely from the sector’s development.

Davina Wood