65 Saccos risk losing their front office status over capital

The Savings and Credit Cooperatives Societies (Saccos) regulator has declined to extend interim deposit-taking licences for 65 non-compliant Saccos in a move that could result in the closure of several front office operations.

The affected Saccos, with an asset base of Sh45 billion, risk losing revenue emanating from their Front Office Services Activity (Fosa) if they do not raise the required minimum capital by June 2014.

Of the 215 Saccos that have applied for a deposit taking licence, 132 are fully licensed, while 18 have been inspected for licensing or issued with letters of intention to licence.

Minimum capital

The Sacco Societies Regulatory Authority (Sasra) chief executive officer Carilus Odemba on Monday cited the main reasons for blocking the licensing as the failure to meet minimum capital requirements of Sh10 million and poor corporate governance frameworks.

“I am disappointed to say that a majority of them may not be licensed in the next nine months. If the law remains as it is the 65 will have to close their Fosas or seek mergers, as there is no chance that the licences will be extended,” said Mr Odemba during the launch of the Sacco supervision annual report.

The Fosa concept — where services like deposit taking and loans, including for non-members, are offered — has seen Saccos expand their customer base and business substantially.

Mr Odemba said that non-compliant Saccos are drawn from various sectors, including government, farmers, traders and transport-sector based Saccos.

The government through the Ministry of Industrialisation said there will be no review of the licensing rules, or an extension of the interim licences.

Fair play

Cooperative Development secretary Nelson Githinji said while the ministry expects that all 215 Saccos will have licences by June 2014, any new licensees will have to meet the conditions.

He said the government must be consistent in its application of the law to promote fair play in the conduct of deposit-taking Sacco business and that extending the transition period is currently not an option.

“There is one window that maybe some were hoping would happen and that is, changing of the law. We are leaving that as a last resort, we would be appearing not to apply the standards equally if we changed the law to favour the ones who have not complied,” said Dr Githinji.

Saccos with low membership numbers have especially been constrained in their bid to raise the minimum capital required.

As at the end of 2012, the non-licensed deposit-taking Saccos (DTS) had a membership base of 342, 857, compared with 2.201 million members for the licensed ones.
They also accounted for deposits of Sh14.4 billion compared to Sh146 billion for their licensed peers.

According to the latest industry report released on Monday by Sasra, Fosa-licensed DTS accounted for 76 per cent of the total industry assets and deposits as at the end of 2012, which translates to Sh223 billion and Sh160 billion respectively.

The industry total for all Saccos stood at Sh293 billion in assets and Sh213 billion in deposits at the end of 2012. Saccos contributed 16 per cent of loans issued by financial institutions in 2012 at Sh221 billion, second only to banks which disbursed Sh1.15 trillion.

This was an increase of 18 per cent on the total loans disbursed by all Saccos in 2011 at Sh188 billion. Deposit-taking Saccos loaned out Sh167 billion in 2012, a 13 per cent increase on the Sh147 billion of 2011.

The growth of Sacco deposits and assets has seen Sasra renew the push for the formulation of the Sacco industry master development strategy so that Saccos can gain inclusion in the national payments system.

Sasra said that while Saccos want to be licensed as members of the clearing houses, it requires the parent ministry to deal with the policy issues in order for the regulator to implement the same.

Payments system

“There is increasing quest for the licensed deposit taking Saccos to participate in the national payments system (NPS). In order to do so we need to map out the necessary regulatory and policy path, including capacity development,” said Sasra chairman John Nthuku.

“The authority will in due course engage the licenced DTS in the establishment of the deposit guarantee fund including the modalities of coordinating the nomination of trustees.”

Dr Githinji said that the ministry would consider fast tracking the policy and regulatory proposals once they are presented.

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