Bank requirements and governance for savings and credit co-operative societies (SACCOS) in Tanzania and Kenya

Abstract

As suppliers of wholesale commercial funds to savings and credit co-operative societies (SACCOS) for on-lending to their clients, banks are key stakeholders. According to the agency theory, banks influence the operations of SACCOS. However, empirical knowledge remains scant on the measures banks apply to control these operations and on SACCOS’ governance-related reactions to bank requirements. In an attempt to fill this gap, this paper explores measures used by banks to monitor and control SACCOS-partners in addition to assessing SACCOS’ governance-related reactions to bank requirements. The paper utilizes data collected through in-depth interviews held with both the management of five banks selected primarily because of their active involvement in wholesale lending to SACCOS. In addition 11 SACCOS linked to these five banks were selected in Tanzania and Kenya. Thematic content analysis was used to analyse the data. The findings reveal that measures applied by banks to monitor and control SACCOS-partners include accessing and investing in information on SACCOS-partners and their clients, and requiring both guarantees and forced savings. Compliance with these measures was found to result into two governancerelated reactions: 1) improved compliance with own by-laws, regulations, policies or procedures, and government regulations; and 2) realignment and/or reduced compliance with some of their own by-laws, policies, regulations, and procedures, and thus some of the government regulations, to accommodate bank requirements. Keywords: bank requirements, financial linkages