a) Description of SACCO Industry 1. Kenpipe SACCO Society Limited operates in the SACCO industry in Kenya.

This is in the financial market sector. 2. Porters five forces can be used to analyse the SACCO industry attractiveness as follows: a) Rivalry among existing SACCOs: In the traditional economic model, competition among rival firms drives profits to zero. Financial market is a highly competitive market in Kenya. SACCOs strive for competitive advantage over their rivals. Most SACCOs offer the same services hence compete for the same customers. There are high fixed costs which make the SACCOs to get as many clients as possible to benefit from economies of scale. Other factors intensifying the rivalry are low levels of product differentiation, and high exit barriers. There is therefore high competition among the existing SACCOs in Kenya. This force bears a negative sign to the incumbent SACCOs. b) Threat of substitute products: In Porter's model, substitute products refer to products in other industry. To the economist, a threat of substitutes exists when a product's demand is affected by the price change of a substitute product. In the financial market sector in Kenya, there are so many products and at the same time there are so many substitute products. The products offered by SACCOs can be provided by other players in the financial market especially the commercial banks and microfinance institutions. This force bears a negative sign to the incumbent SACCOs. c) Threat of new entrants: It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry also affects competition. . In reality, industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market. These are barriers to entry. SACCOs are now required to maintain a capital level of Sh10 million beginning 2010 and raise it to Sh20 million by 2014. This is according to the Savings and Credit Co-operative Societies Act 2008, which established the Sacco Societies Regulatory Authority. The institutions are also required to hold at least 10 per cent of their assets in liquid form - cash or shares and short term debt instruments like Treasury bills, besides paying insurance premiums to the regulator to guarantee members' deposits up to Sh100,000. This now acts as a barrier to entry in

the SACCO industry in Kenya. This force bears a positive sign to the incumbent SACCOs. d) Bargaining power of suppliers: Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry's profits. In a service sector there is no direct supplier of raw material. However the supply of supporting facilities like pass books, furniture, stationeries, etc can give the same analogy. The core business of the SACCOs is service which mainly focuses on safety of wealth. The suppliers do provide some tangibles like pass books, furniture, etc. The impact of this in business is not significant since they are not really like the raw material. Therefore this is a favorable force in this industry hence it bears a positive sign (+). e) Bargaining power of customers: The power of buyers is the impact that customers have on a buying process of the products from a certain industry. For instance much as we consider SACCOs to be under the service industry, physical properties like furniture, building, computers, etc are vital to make the service a possibility. Having the whole range of players apart from the full-fledged banks, it is evident that customers can move within the 22 operators as full-fledge banks and can also decide to switch to the Regional Unit banks or financial institutions. Their choice can even extend to the NGOs, depending on the nature of the product. For instance if a customer is looking for a small amount of loan, he/she can even get the said product from organizations like KWFT, Jamii Bora, etc. The close location of various SACCOs is also giving customer a very high bargaining power. With this concentration the bargaining of customers always goes high before customers start looking on a differentiated service. Therefore, to the existing fully fledged SACOOs within the industry this is an unfavorable condition, hence bearing a negative sign (-). b) Business System of the SACCO 1. Ideal Business System for SACCOs A business of management information system for a SACCO should be able to monitor and keep records of members savings, loans, withdrawals and deposits. Such a system should capture the back office operations (keep track of member register, savings and loans and for automatic dividend generation), front office operations (allow for micro-

banking transactions to be carried out), transactions, processing, and reports. Security of such a system is paramount. A good business system should also enable better internal controls. 2. Kenpipe SACCO has a management information system that it uses to capture the business operations but the technology is obsolete and there is need to upgrade it given new technologies in the market. The key strategic and operational issues related to the business system are as follows: i. The technology used enables the SACCO to source for staff in the organisation. It manages the sourcing of staff for the SACCO and also sourcing for such things are office stationery and equipment. ii. Marketing: the technology has enabled the SACCO to market its products to various members as well as non-members. Automated emails can be sent to members on availability of new products. iii. iv. Sales: the SACCO has also been able to makes sales such as loans through the system that it is currently using. The system captures such sales as loans. Service: the system has enabled the SACCO to offer better services to the clients through the front and back office services. The transactions for the SACCO all pass through the system. c) Business Model Analysis and Benchmarking 1. The current business model is Savings and Credit Cooperative (SACCO) Society Model. Usually, the model works by drawing members with a common characteristics together, for instance, employees of a company, teachers, or other professionals. These people come together in order to save and access credit from these SACCOs. However, recently, the model has been changing due to competition and capital requirements which have made the SACCO model to go beyond the traditional mandate and draw members from outside of the traditional areas. 2. For Kenpipe SACCO, the model used is the same as the one described above. The current members are drawn from the employees of Kenya Pipeline Corporation. It is also exploiting the possibility of the spouses and children of the employees to join the SACCO. It has not fully exploited this avenue. Of particular concern is that members do not actively participate in SACCO matters.

3. The business model is the same as that of the major competitor except for the fact that the major competitor is open to receive members from all professions. This has seen it lose some of the members to the competitor. Kenpipe focuses on the employees of the company only and their spouses/children. The IT used is old-school and this has seen members complain hence the dissatisfaction and subsequent movement to other SACCOs. d) Competitive Challenges The key requirements are: i. ii. iii. Investment in a new business system/MIS to automate the SACCO operations. Improve on the management of the SACCO in order to attract more members Improve the business model in order to attract members outside the traditional membership areas.