TRANSPARENCY

Saccos to disclose defaulters credit information

Saccos will be required to put out information on members’ performing and non-performing loans.

In Summary

•Saccos increased amounts set aside to cater to bad loans by 42.5 per cent to Sh15.26 billion in the year ended December 2018

•MPs, however, believe the Sacco industry woes are a result of poor lending practices forcing Saccos into bankruptcy

Dan Marube, CEO of Co-operatives Alliance of Kenya and MD of KUSCCO George Ototo during the Co-operative leaders' consultative town hall meeting in Nairobi on May 7, 2019
Dan Marube, CEO of Co-operatives Alliance of Kenya and MD of KUSCCO George Ototo during the Co-operative leaders' consultative town hall meeting in Nairobi on May 7, 2019
Image: ELIZABETH KIVUVA

New rules under the Sacco Society (Amendment) Bill, 2018 will now require Saccos to share credit information on loan defaulters to root out reckless borrowing.

On Wednesday, Members of the 12th parliament were all in agreement that saccos needed to put out information on members’ performing and non-performing loans.

“With the inclusion of this, we will not have people moving from one Sacco to another because the Saccos will be able to share information amongst themselves, especially on good and bad members,” Kieni MP Kanini Kega told members of the National Assembly on Wednesday.

The credit information once shared with Credit Reference Bureaus can be available to other licensed financial institutions as a guiding tool on how to assess different borrowers based on their credit score.

“Sharing of information on credit by logging deposit Saccos into credit reference bureaus is a good development in warding off bad borrowers,” Cooperative Alliance of Kenya executive director Daniel Marube said when he appeared before the Departmental Committee on Trade, Industry and Cooperatives.

In a report released last month, the Sacco Societies Regulatory Authority (Sasra) shows Saccos increased amounts set aside to cater to bad loans by 42.5 per cent to Sh15.26 billion in the year ended December 2018.

According to the regulator, this was largely driven by the adoption of new IFRS9 accounting standards, which came into effect last January.

“The sharp increase in the provisioning for loan losses was occasioned by the implementation of IFRS 9 by Saccos, which led a relatively higher provision than previously undertaken,” the report stated.

MPs, however, believe the Sacco industry woes are a result of poor lending practices forcing Saccos into bankruptcy.

“In this country we have suffered from conmen, who hop from one Sacco to another without declaring their debts. Once this is passed, it will make it difficult for the men and women of this country who want to bankrupt Saccos. Saccos are everything for any developing country,” Mavoko MP Patrick Makau said.

The move is part of the government’s efforts to restore sanity in a sector that controls over $5 billion (Sh568.3 billion) in members’ savings.

With growing concerns over mismanagement, fraud and bad loans in the Sacco industry, the government is also planning to shut down 2,200 Saccos countrywide.

This means nearly a third of 7,300 Saccos currently operation in the Kenyan market have been declared as either “dormant” or “unknown”, according to official records.

With all these Saccos targeted for closure, it is the savers who risk losing billions where Nairobi County has the highest number of struggling co-operatives, while Mombasa and Machakos have more dead institutions than thriving ones.