CUSHION

Cabinet approves law protecting Sacco depositors' funds

The board of trustees shall be chaired by a person elected from among its own members.

In Summary
  • It will cover deposits and not shares of up to Sh100,000
  • The government is also working on a Central Liquidity Fund system that will enable Saccos to borrow amongst themselves.
President Uhuru Kenyatta signs the Visitor’s Book at the recent World Co-operatives Day ‘Ushirika Day’ Celebrations held at KICC Nairobi flanked by CEO Co-operative Bank Gideon Muriuki, PS State Dept. for Co-operatives Ali Noor Ismail and the Cabinet Secretary for Industrialisation Peter Munya.
President Uhuru Kenyatta signs the Visitor’s Book at the recent World Co-operatives Day ‘Ushirika Day’ Celebrations held at KICC Nairobi flanked by CEO Co-operative Bank Gideon Muriuki, PS State Dept. for Co-operatives Ali Noor Ismail and the Cabinet Secretary for Industrialisation Peter Munya President Uhuru Kenyatta signs the Visitor’s Book at the recent World Co-operatives Day ‘Ushirika Day’ Celebrations held at KICC Nairobi flanked by CEO Co-operative Bank Gideon Muriuki, PS State Dept. for Co-operatives Ali Noor Ismail and the Cabinet Secretary for Industrialisation Peter Munya.
Image: COURTESY

Members of the Savings and Credit Cooperatives (Sacco) will now recover most of their funds in case the institution collapse. 

On Thursday, the cabinet approved amendments to the Savings and Credit Cooperatives (Sacco) Act of 2008, which infuses a deposit protection scheme for members.

The Sacco Societies Act, Section 55 provides for the establishment of a Deposit Guarantee Fund for the Sacco sector to provide protection for members’ deposits, but not shares, up to an amount of Sh100,000 in the event that an institution collapses as a result of governance and liquidity challenges.

The fund, which is the equivalent of the defunct Kenya Deposit Protection Fund (DPF) in the baking industry, shall be run by a board of trustees.

They comprise SASRA chairman, CEO, principal secretary to the National Treasury, Central Bank governor, Commissioner of Co-operatives and four members nominated by Sacco societies and appointed by the Treasury Cabinet secretary.

The board of trustees shall be chaired by a person elected from among its own members.

The kitty will be financed through contributions from Saccos, investment income, borrowings, donations and grants.

Kenya’s Co-operative movement commands membership of about 15 million people with an asset base of more than Sh1 trillion while providing employment to more than 500,000 people directly and another 1.5 million indirectly.

The approval follows months of consultations, with the legislation going through several bodies including the National Development Implementation and Communication Cabinet Committee (NDICC),  Attorney General’s office and Parliament.

However, experts believe that more flesh needs to be included in the Act to cover specific scenarios that would delay affected members' compensation or stall the entire process hence incapacitating the fund.

For instance, it is silent on which documents a member should possess prior to lodging a claim. This gap creates a myriad of assumptions among members and institutions and could ultimately lengthen the compensation period.

In addition, the Act does not state whether the fund will cater for inflationary costs brought about by prolonged and protracted cases that ultimately affect the settlement.

Moreover, a gap exists in how to handle existing assets that a Sacco has managed to accumulate since its inception.

Saccos offer services cutting across financial services, housing, insurance, transport, hospitality and agriculture among others.

They have continued to mobilise savings among the low-income households who have limited access to mainstream banking.

The latest industry data shows the cooperative sector commands an asset base of Sh1.3 trillion and Sh885 billion in savings and deposits, contributing about 32 per cent of the national savings in the country. The loan portfolio currently exceeds Sh860 billion.

Saccos are the most vibrant and fast-growing cooperative societies in Kenya, according to the ministry, with the membership of Saccos standing at above 5.47 million, in 2020.

The value of total assets for the sub-sector stands at Sh627.7 billion.

Deposits have grown over years to Sh431.5 billion and total loans grew by about Sh474.8 billion as at the end of 2020.

Instances of Saccos collapsing with members' savings have however continued to raise concern.

Two years ago, mismanagement at the Moi University Cooperative exposed members to a loss of their life savings, with an approximate value of Sh4 billion.

Meanwhile, the government is also working on a Central Liquidity Fund system, with support from the World Bank, that will enable Saccos to borrow amongst themselves.

Cooperative PS Ali Noor Ismail revealed this in February during the Harambee Sacco 51st Annual Delegates Meeting.

“Kenya has made great strides in economic progression courtesy of co-operatives. Their contribution towards economic growth and employment creation cannot be overstated,” the PS said.

The Sacco Societies Regulatory Authority (SASRA) has been putting in new regulations in the sub-sector to protect members.

Last year, it started implementing the non-deposit-taking Sacco Regulations, targeting entities with over Sh100 million in deposits, diaspora co-operatives, and Saccos operating on virtual platforms.