The Economist Europe – July 22-28, 2017

58 Finance and economics The EconomistJuly 22nd 2017

1

T

HE most recent time Moses Kibet Bie-

gon needed a quick loan was when his

roof blew away. He got one from the Imar-

isha Savings and Credit Co-operative, in

Kericho in western Kenya. Imarisha chan-

nels the savings of its 57,000 members into

loans for school fees, business projects or,

in Mr Biegon’s case, roof repairs. It runs a

fund to help with medical bills. And it pays

dividends to its members from its invest-

ments, which include a shopping plaza

that itopened last year.

Savings and credit co-operatives (SAC-

COs) like Imarisha are the African version

of credit unions: member-owned co-ops,

usually organised around a community or

workplace. Some are rural self-help groups

with a few dozen members and a safe.

Others have branch networks and mobile

apps. The largestSACCOs rival banks;

Mwalimu National, which serves Kenyan

teachers, has even bought one.

The co-operative model brings “a more

humane face” to finance, argues Robert

Shibutse, Mwalimu’s boss. ButSACCOsare

not just a cuddly sideshow. In Kenya,

where they are strongest, they provide

more loans for land, housing, education

and agriculture than banks or microfi-

nance institutions. The World Bank esti-

mates thatSACCOs and other co-opera-

tives account for over 90% of all housing

credit in the country. In Rwanda they at-

tract twice as many savers as banks. Mem-

bership is growing in Ghana and Tanzania.

SACCOs can be generous lenders, in

part because their members are often col-

leagues or neighbours. That makes it easier

to judge risks, urge repayment and serve

the folk that banks tend to shun. They fill a

“vacuum” in rural areas, says Lance Kashu-

gyera, who leads a Ugandan government

project on financial inclusion. In Kenya

SACCOs typically offer better interest rates

than banks. But members can view a loan

as a right and are often allowed to borrow

up to three times their savings. In 2016 the

largest Kenyan SACCOs had loan-to-depos-

it ratios of 109%, meaning they had to use

other sources of funding than their mem-

bers. “The demand for credit is high, but

the savings culture is poor,” laments an of-

ficer at a Ugandan SACCO.

In Uganda the greatest danger has come

from politicians bearing gifts. In 2005 the

government promised “a SACCOin every

sub-county”, backed up with donations

and cheap credit. Local bigshots hastily

formed co-ops to get their hands on the

money. Members saw loans as a handout

from the ruling party and made little effort

to repay. When the cash ran out, SACCOs

failed. “They were a bit political,” sighs

James Lubambo, an official in Iganga dis-

trict, reeling off the names of 11 local SAC-

COs that have recently collapsed.

Indeed, the state ofSACCOs often re-

flects a country’s politics. After a poor

showing in Kampala in last year’s elec-

tions, Yoweri Museveni, Uganda’s presi-

dent, has personally delivered 100m shil-

ling ($28,000) cheques to SACCOs in the

city. In Rwanda, bycontrast, an efficient but

overbearing government has built a suc-

cessfulSACCOsector from scratch—even if

a quarter of members felt obliged to join

out of a sense of civic duty, according to

one survey.

There are better ways for governments

to help. One is byplugging the yawning

gaps in regulation, which in some coun-

tries bundlesSACCOs together with other,

non-financial co-operatives. Occasional

tales of failure and fraud also do little for

public confidence. In 2010 Kenya created a

new regulator forthe largest “deposit-tak-

ing” SACCOs: it is gradually enforcing capi-

tal requirements, but remains hugely un-

der-resourced. Uganda brought in a new

set of rules on July 1st, after more than a de-

cade of discussion. It is also running a sev-

en-year project which, amongother things,

will train leaders in small rural SACCOsto

manage savings and credit better.

There are other challenges. Kenyan

SACCOs face a squeeze as a rate cap on

bank loans intensifies competition for the

most creditworthy borrowers. And they

will need to adapt to mobile banking,

which is helping banks reach customers

thatSACCOs could once keep to them-

selves. But the co-operative model remains

distinctive. Mr Biegon doubts that a bank

would have financed his roof repairs. The

SACCO, he says, is “our hope”. 7

Africa’s savings and credit co-operatives

Fixing the roof

KERICHO AND KAMPALA

Credit unions in Africa need regulation,

not handouts

Striking a co-operative note

I

N MOST four-decade-old firms run by

greying co-founders, investors would

have long since demanded clarity on suc-

cession. But private equity works different-

ly: the industryhas been dominated by its

pioneers ever since its origins in the 1970s.

So an announcement on July 17th about its

future leadership by KKR, one of the

world’s largest private-equity firms, puts it

a step ahead of its rivals. Its aim of ensuring

that the firm has the right structure in place

“for decades to come” is not obviously

shared acrossthe industry.

KKR has been run since 1976 by two of

its founders, Henry Kravis and George

Roberts (both in their early 70s). They are

staying on as co-chairmen and co-chief ex-

ecutives but with less of a day-to-day role.

Lining up behind them are a pair of 40-

somethings, Joe Bae and ScottNuttall, who

will join the board and take the titles of co-

president and co-chief operating officer.

Such explicit, public succession plan-

ning is unusual. Stephen Schwarzman, the

boss and co-founder of Blackstone, the

world’s largest private-equity firm, has

hinted that Jonathan Gray, head of its prop-

erty arm, could succeed him. But the chiefs

of other behemoths, such as Leon Black of

Apollo, or David Rubenstein, William Con-

way and Daniel D’Aniello, the trio behind

and atop Carlyle, have largely kept silent

about their heirs. So too have the bosses of

many smaller firms.

Public reticence does not necessarily

imply a lack of planning. Most private-equ-

ity firms are private partnerships and do

not face the level of scrutiny accorded to

publicly listed firms like KKR. But there is

often pressure to reveal succession plans

from investors who are committing capital

that could be tied up for ten years or more.

Not having a scheme for a smooth tran-

sition of power carriesrisk in all business-

es. But the potential for acrimonious dis-

putes, not leastover money, is particularly

Private equity

Stepping up to the plate

NEW YORK

KKR lays out a succession plan in an industry still largely unprepared for the future