Saccos regulator cancels licences of 5 cash-strapped savings societies

The Sacco Societies Regulatory Authority (Sasra) has revoked the licences of five credit unions, effectively barring them from taking deposits from the public. 

Sasra said the deregistered saccos, including the giant Ufundi and Transcom, were experiencing serious liquidity problems and other corporate governance challenges that required strong action.

“They had liquidity challenges and were unable to meet obligations such as paying members deposits when due,” said Sasra chief executive John Mwaka, adding that the affected saccos must revert to offering back office services only.

The list of saccos whose deposit-taking licences have been withdrawn includes Nest Sacco, Green Hills Sacco (formerly Chebosobon) and Maono Daima Sacco which have been ordered to immediately cease offering banking-like services popularly known as front office services.

Mr Mwaka said the regulator had noted serious corporate governance lapses at the affected saccos directed them to terminate services such as salary processing, operating savings and current accounts, automated teller machine (ATM) services, mobile banking, and money transfer services.

A total of nine saccos have had their licences withdrawn since 2014, giving Sasra a fresh impetus to the planned setting up of a centralised lending facility for credit unions, akin to commercial banks’ interbank market, to help societies manage short-term liquidity challenges.

READ: Sasra mulls over a system for societies to lend each other

The five deregistered saccos have a combined membership of 18,769 savers, Sh1.9 billion in assets, Sh641 million in deposits and a loan book of Sh517 million.

The Kenyan sacco industry’s loan book grew nearly a fifth to hit Sh228.5 billion by December 2014. A total of 3.01 million Kenyans belong to credit unions.

Liquidity

Deposit-taking co-operatives held assets worth Sh301.5 billion and Sh205.9 billion customer deposits in the year under review.

The withdrawal of deposit taking licences means Ufundi, Transcom, Nest, Green Hills and Maono Daima will now be under the jurisdiction of the Commissioner for Co-operative Development.

The Sacco Societies Act bars any person from engaging in deposit-taking business without a valid licence from Sasra.

Those found culpable of running a deposit-taking sacco business without a licence from Sasra face a Sh500,000 fine and a three-year jail term.

Sasra regulations require deposit-taking credit unions to maintain a regulatory 15 per cent liquidity ratio, and are compelled to file a liquidity statement report at the end of every month detailing the liquid assets as well as the balance of liquid liabilities.

Saccos are also required to maintain a core capital of not less than Sh10 million and must maintain a core capital to total assets ratio of 10 per cent, and core capital to deposit liabilities and institutional capital to total assets at eight per cent each.

Ufundi sacco bombing

A total of 177 deposit-taking saccos are currently licensed to operate in Kenya — 13 of them having temporary licences that are due to lapse in June — down from 181 unions last year and 215 in 2014.

READ: 65 Saccos risk losing their front office status over capital

Ufundi, founded in 1972, has a total of 5,237 members who are mostly employees of the Ministry of Roads and Public Works, and related parastatals.

It is ranked the 58th largest sacco in Kenya with a loan book of Sh251 million, Sh333 million in members’ deposits and total assets worth Sh1.2 billion as at December 2014.

Sasra said mid-sized Ufundi has had historical liquidity challenges, linked to the 1997 bombing of the US embassy in Nairobi. The society’s headquarters, which was located in the ill-fated Ufundi Co-op Plaza, was totally destroyed in the bombing.

“There have been challenges refunding deposits members who passed on and those who have retired,” said Mr Mwaka.

The United States Agency for International Development gave Ufundi Sh205 million as compensation and the cash was used to buy another building along Moi Avenue next to Jeevanjee Gardens.

Controversy has, however, stalked ownership of the building with the courts having ruled in December 2014 that Kiingilio Housing Society Ltd, formerly Gateway House Investment, is the rightful owner of the plaza and not Ufundi.

Transcom draws its membership of more than 1,355 from employees of the Ministry of Transport as well as those from agencies under the ministry such as the Kenya Roads Board and the Kenya National Highways Authority.

The sacco had a balance sheet of Sh555.7 million in assets, Sh247.5 in deposits and a loan book of Sh207.7 million as at December 2014.

Nest, set up in the year 2006 by Nairobi-based jua kali sector workers, can no longer take deposits from the public after losing its Sasra licence.

The tier-three sacco had 5,950 members who accessed services in four outlets: Uthiru township (head office), and three others at Dagoretti market, Wangige market and Juja town.

It had disbursed Sh33.6 million in loans and had Sh36.8 million in deposits and an asset base of Sh66.8 million as at end of 2014.

The 2,372 members of Green Hills, a Fort Ternan-based society, had total assets of Sh26.5 million, members’ deposits of Sh11.9 million and a loan book of Sh13.8 million at the end of 2014.

Nakuru-based Maono Daima Sacco, formerly Mulot FSA Sacco, with 3,855 had advanced members Sh11.2 million in loans, Sh11.9 million deposits, and Sh12.3 million in total assets by December 2014.

Sasra last year revoked the licences of three deposit-taking saccos, Ntiminyakiru Sacco Society, Ogembo Sacco Society Ltd and Isiolo Teachers Sacco Society Ltd, citing failure to meet minimum capital requirements and poor corporate governance framework.

The agency in October 2014 placed Kiambu-based Jijenge Sacco Society under statutory management due to liquidity challenges, high external borrowing and inability to meet obligations to depositors and other third parties.

The regulator has hired Madison-based Dave Grace & Associates to guide in developing a central liquidity facility to help financial co-operatives borrow from each other and meet short-term obligations.