Saccos target members for fresh capital

Harambee returned Sh560.2 million profit for 2009 up from Sh514.8 million in 2008 or six per cent of the members’ deposits of Sh7.9 billion.

Saccos have been growing at the rate of 25 per cent per year for the last six years, according to data from the Cooperatives Development ministry.

Failure by Saccos to raise the minimum capital levels could lead to closure or forced mergers to comply with the requirements.

Under attack

Sacco Societies Regulatory Authority (SASRA), the regulator of the Saccos, says the changes should encourage prudent management of the institutions whose market has recently come under attack from commercial banks.

Yesterday, SASRA said it was preparing a circular to all Saccos countrywide, spelling out the requirements to ensure smooth implementation of the rules contained in the Sacco Societies Act, 2008.

“As part of licensing requirements each Sacco will provide us with a business plan including financial projections over the 3-4 years showing how they will meet the various financial standards including investment, liquidity, capital and asset quality, “ said Peter Njuguna, the Chief Supervisory Manager at SASRA.

The rules are meant to hammer in strict corporate benchmarks, including administrative sanctions such as prohibition of dividends, expansion, lending, investments or acquisition of property for financial mismanagement.

Sacco managers said it would be difficult for mergers to happen because most societies are formed by people of common interests such profession and employment.

“Merging Saccos would make it almost difficult for the new entity to operate due to obvious differences in the nature of membership,” said Mr Kimathi.

To ensure Saccos stay within their core business, investments in non-interest earning assets has been restricted to 10 per cent of total assets while investments in land and buildings are capped at five per cent, the same ceiling placed for loans to directors and staff.

While most Saccos can easily meet the minimum capital requirements, either by asking for more capital injections from members or withholding dividends, those with thin membership may have to merge or close shop.

“Since 2004, we have been pushing working on our capital base and have surpassed the new requirement,” said Peter Mbui, the operations Manager at Mhasibu Sacco whose membership mainly consists of accountants.

“Every member has had to raise a minimum monthly deposit of Sh1,000 to achieve this threshold,” he said adding the Sacco has a share capital of Sh145 million currently.

The rules also demand that investments acquired for expansion be disposed of after two years if they have not been put to any use except with approval from SASRA, which has been granted on-site inspection mandate similar to that exercised by the Central Bank’s supervision department.