How Cooperatives can reduce the risk of credit through financing Income-generating Assets

How Cooperatives can reduce the risk of credit through financing Income-generating Assets

Despite economic challenges, the country has experienced steady GDP growth in recent years. However, factors such as the fading low base effect and severe droughts have impacted economic performance, leading to reduced loan demand and increased non-performing loans (NPLs). To address these challenges, Cooperatives must adopt a holistic approach to risk management. Here are key insights and actionable steps for Cooperatives to implement:

  • Robust Creditworthiness Assessment:

Use credit scoring models and risk assessment tools to ensure consistent and objective evaluation processes. Prudent risk segmentation and due diligence will help in making informed lending decisions.

  • Regulatory Compliance & Continuous Market and Economic Analysis:

Stay updated with regulatory guidelines and compliance requirements set by the Cooperatives Societies Regulatory Authority (SASRA). Regularly assess market conditions and macroeconomic trends to adjust lending strategies and risk management practices accordingly.

  • Proactive Loan Monitoring:

Implement a robust loan monitoring system to track loan performance throughout the loan lifecycle. The introduction of the Regulations aimed to promote responsible lending practices, consumer protection, and stability in the digital credit market.

With systems such as Counter1Serve, you will be able to monitor repayment schedules, analyze financial statements, and promptly address any signs of financial distress or delinquency. 

  • Diversify Loan Portfolio:

Loan portfolio diversification is the process of minimizing the risk which might occur due to the offering of products or funds to one class of individuals. It can simply be defined as a way of not placing all eggs in the same bag derived from Markowitz’s portfolio theory (Marling and Emanuelson, 2012).

By spreading loans across diverse economic sectors and borrower profiles, Cooperatives can reduce the potential impact of sector-specific downturns on the overall loan portfolio. This promotes stability and resilience. 

What’s the Buzz about Real Estate?

It’s interesting to note that 60% of Kenyans with high net worth are considering investing in private rental property despite the current challenges in the domestic stock market. This trend highlights the attractiveness of real estate as an investment option and the potential benefits it offers. This is because real estate is a tangible asset, can generate rental income, appreciates in value over time, and leverage the property for further investments or borrowing.

How then can a Cooperatives benefit from all this? Asset-backed security. Financing affordable houses allows lenders to have a tangible asset as collateral, which provides a higher level of security for the loan. In the event of default, the lender can recover their investment by selling or renting out the property. Overall, this is a viable solution for lenders to protect their lending process, promote financial stability, and contribute to positive social impact. With partners like Naivera in the private sector, you can help your Cooperatives members to build wealth as they make passive income.

Despite economic challenges, Kenya prioritizes financial inclusion initiatives. Cooperatives play a crucial role in providing access to credit for underserved populations and small businesses. By implementing these strategies and leveraging technology, Cooperatives can navigate challenges and reach a broader customer base, contributing to the overall growth of the Kenyan economy.

You can read more about how Cooperatives can reduce the risk of credit through financing Income-generating Assets in The Coop News Magazine as discussed by our CEO Charles Nyandia.


How Cooperatives can reduce the risk of credit

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