MUGWE: How Saccos can develop Kenya without losing members’ trust

Today, the waitress in Melbourne and the dockworker in Sydney own stakes in airports, ports and toll roads worth more than 200 billion Australian dollars, outperforming the banks retail products.

In 1900, Canadian Alphonse Desjardins opened the first caisse populaire using the savings of ordinary working people.

A caisse populaire is a member-owned cooperative financial institution, similar to a Sacco. From that modest beginning grew a cooperative financial network that now anchors Quebec’s economy where the Caisse de dépôt, built and operates the modern automated Montreal metro.

The worker’s dollar did not remain forever trapped in passbooks and short-term loans but became railway stations, rolling stock, fares and urban transformation.

Consider our own history. This country’s schools, cattle dips, churches and dispensaries were built by harambee. Ordinary people pooled their savings for infrastructure that the banks would not touch.

Therefore, the cooperative movement financing the nation’s hard assets is certainly not a new phenomenon.  

Last week, the Deputy President Kithure Kindiki while speaking at the 104th National Ushirika Day celebrations, praised the sector's milestone of surpassing Sh1 trillion balance sheet.

He stated that cooperatives are strategically placed to support the government's flagship programmes such as affordable housing and infrastructure.

Soon after Kindiki’s remarks, a wave of public anxiety spread across social media and Whatsapp groups, with claims that the government intended to raid Sacco deposits to finance the National Infrastructure Fund (NIF).

That claim has since been formally denied by the National Treasury, the State Department for Cooperatives and NTV issued a public apology for misreporting which contributed to the panic.

That clarification matters and is precisely why this debate must be rescued from public panic. The debate should no longer be whether the state can take Sacco deposits.

It cannot, and it should not. It should be, can be cooperative capital, under voluntary, legally protected and professionally governed arrangements, become part of Kenya’s long-term infrastructure ownership model?

This underlying tension is easy to state but equally dangerous to ignore. On one hand, the state increasingly sees long-term domestic capital as national muscle that can help build the next generation of hard assets.

On the other hand, the cooperative movement rightly sees members’ savings as a sacred and liquid lifeline of the ordinary citizen, not money to be gambled on state-led infrastructure.

Begs the question. Which side is right?

I submit that both are. The country should not only rely on taxation, Eurobonds and donor benevolence for its development.

Equally, Sacco money is not idle cash nor abstract capital. It is the teacher’s emergency loan, the nurse’s school fees, the police officer’s land deposit and mama mboga’s working capital.

The cooperative movement must therefore not simply hand over its money, but neither should it reject the idea outright. It should first ask for clear rules.

First is consent. No Sacco deposit should be compulsorily diverted into the NIF. Saccos are member-owned institutions and their legitimacy rests on trust, liquidity and democratic control.

Any participation in infrastructure must be voluntary and approved through proper governance, investment policy, member representation and prudential regulation.

Second is liquidity. Sacco money responds to life’s realities. A child falls sick. Fees are due. A business needs stock. A farmer needs inputs before the rain.

Infrastructure, by contrast, is long-term, illiquid and slow to mature. Hence, Saccos should only invest in infrastructure through clearly defined investment funds, not from members’ short-term savings needed for loans.

Saccos are required by law to ensure a strict firewall between the money needed to meet members’ immediate needs and the money that may be used for long-term investments.

Consequently, they maintain a minimum liquidity ratio of 15 per cent as pure cash or liquid bank accounts.

Third is commercial discipline. Not every project called strategic is investable, and the fact that it is national does not make it prudent because not every road is bankable, not every airport expansion will pay for itself, and not every power project has predictable cash flows.

A project suitable for Sacco-linked investment must have independent feasibility studies, clear revenue streams, credible counterparties, enforceable contracts and transparent risk allocation.

Fourth is insulation from the budget. The NIF must not become a side door through which the state borrows from citizens savings after exhausting other doors. Saccos must participate as investors, not as lenders of last resort to a hungry Exchequer.

Their money must go into ring-fenced projects, not recurrent expenditure or plugging holes.

The state must put real skin in the game by transparently absorbing early risk through disclosure of privatisation proceeds, development finance, guarantees, first-loss capital and project preparation funds.

Fifth is transparency. The cooperative movement should demand a public project pipeline, published expected returns, exposure limits and independent valuation.

It should know whether it is financing a road, a power line, a water system, or a port facility. It should know the tariff, the off-taker, the concession period, the construction risk, the operator and the exit option. In infrastructure, secrecy is usually the beginning of loss.

Sixth is representation. If cooperative capital is to help build national infrastructure, the cooperative movement must not be treated as a passive wallet. It needs a seat at the table where investment policy is shaped, risk is priced and performance is reviewed.

Saccos should not only be summoned when money is needed and dismissed when decisions are made. However, representation must also come with capacity and accountability.

Cooperative leaders who make these decisions must be properly trained by accredited and recognized institutions in investment appraisal, risk management and fiduciary responsibility, and there must be clear accountability measures to ensure that financial decisions are made prudently and transparently.

Seventh is fairness of return. Sacco members should not be asked to accept lower returns because the project is patriotic. Patriotism does not pay dividends.

Cash flow does. If infrastructure is productive, it should reward those who financed it, and if it cannot, it should not be sold to them as an investment.

This has been the missing language in much of our public debate. We speak as though domestic capital is either a cow to be milked or a child to be protected from all risk.

It is neither. Domestic capital is a national instrument that must be professionally governed. The morality lies not in the shilling but in the structure.

But there is a deeper point in all these. Citizens’ savings already finance the state indirectly when banks buy government securities, pension funds buy government paper and insurance companies invest in public instruments.

The difference with the NIF, if designed properly, is that the citizen’s money would not merely finance debt. It would own productive assets and move from passive lending to active participation in national wealth creation.

Done properly, this could become one of the most important ownership reforms in Kenya’s history. Imagine matatu and boda boda Saccos owning 25 per cent equity stake in the express way. For context, for the financial year ending June 30, 2024, it generated Sh4.6 billion in gross revenue.

At 25 per cent, that translates to Sh1.15 billion gross revenue and about Sh575 million net profit. This would not be the state raiding savings.

It would be citizens converting savings into productive assets that serve their own lives. This is why the cooperative movement should not run away from this conversation.

And it would change politics too, because ownership changes the citizen’s relationship with public assets. A citizen who owns part of a road through a Sacco no longer sees that road only as something government has built somewhere far away.

They see it as an asset whose condition affects their own returns. They therefore care whether it is maintained, whether tolls are fairly collected, whether contracts are honoured and whether corruption is eating into value.

In this way, ownership disciplines citizenship because the success or failure of the asset is no longer abstract. It touches their own pocket.

I concede that the danger must not be minimised. Kenya has a long habit of taking noble ideas and feeding them into weak institutions where funds become slush funds, boards become reward centres, public participation becomes theatre, contracts become secrets, losses become public, while gains become private. This is why the NIF must be more transparent than required, more conservative than expected and more accountable than politically convenient. When its oversight and governance is credible, Saccos will not need to be bullied or seduced with slogans. Money is shy. Member money is even shyer. It follows confidence, not command.

Finally, my unsolicited advice is to the Saccos. You must grow beyond the comfort of short-term lending alone.

Your historic mission was never simply to circulate small loans among the excluded. It was to give ordinary people economic power. In the 20^th century, that meant school fees, land, houses, dairy coolers and farm inputs.

In the 21^st century, it must also mean energy, logistics, digital infrastructure, housing and water assets. The poor do not become wealthy by saving forever in low ambition, but when their pooled capital enters the commanding assets of the economy.

It always seems impossible until it is done – Nelson Mandela