Saccos target members for fresh capital

Kenyan workers who are members of deposit-taking Saccos may be forced to take home less profit from their savings in the coming months as the institutions build their capital levels to comply with new industry regulations.

The Saccos, also known as FOSAs, with an estimated membership of five million and assets worth Sh150 billion, are required to apply for a licence in the next 12 months and have a core capital of not less than Sh10 million in the next four years.

Industry statistics show that an estimated 60 Saccos are way below the required minimum capital levels –– and are expected to turn to the members for money needed to reach the threshold.

Contributing money for the capital build-up will force members to take a portion of their monthly take-home or forego annual dividends in the next four years in support of the initiative.

Nation Staff Sacco has, for example, asked its members to increase their share capital to Sh6,000 from the current Sh1,000 in the next five months beginning August.

“We have decided to start early enough to avoid a last minute rush as the new rules could see closure or merger of some Saccos if they do not innovate and cut operating costs to meet the threshold,” said Jacob Kimathi, the Nation Staff Sacco manager.

Co-operative Development and Marketing minister Joseph Nyaga, published the regulations this week targeting the 203 Saccos.

All Saccos are required to attain a minimum core capital of not less than 10 per cent of the total assets, and institutional capital of not less than eight per cent of the total assets by the fourth year signalling that even the big players with more capital than the law requires have some adjustments to do.

The push for retention of dividends or reduction of monthly take home comes at a time when official figures show that standards of living are on the decline for millions of employees whose salaries have failed to keep pace with the rising consumer prices.

Household incomes grew at the rate of 6.4 per cent in 2005, 7.5 in 2006 and 8.7 per cent in 2007 before peaking at 8.4 in 2008 but high inflation that averaged 9.2 per cent in 2009 eroded much of the gains.

The new regulations also require Saccos –– a favourite source of credit for most Kenyan workers –– to invest in new banking halls and install sophisticated security equipment, including armed personnel from the Administration Police and private security guards.

Industry officials say compliance with new legal regime could leave Saccos with less money for lending, and ultimately impact on their income.

The capital regulations are causing ripples even in big Saccos such as Harambee with a membership of 98,000 drawn from civil servants and officers from the disciplined forces.

“Compliance will come at a very high cost for both members and the institutions,” said Benson Ojiambo, the acting general manager at Harambee, noting that the society is not fully compliant.

“We are considering a cut in dividend payouts to bridge gaps in areas of capital adequacy,” said Mr Ojiambo.