Regulate all deposit-taking entities

Ekeza Sacco
A security guard shields Samuel Mburu, a lawyer for one of the parties in the Ekeza Sacco case, from being roughed up by people said to be the co-operative’s members at the Milimani Courts on March 14, 2019. PHOTO | DENNIS ONSONGO | NMG 

How can we protect the ordinary folks who have lost their hard-earned savings in the Ekeza Sacco scandal? Unlike bank depositors who are able to recover some little money whenever a bank collapses, savers in Saccos don’t have deposit protection or insurance.

This is because despite the fact that the Saccos Societies Regulatory Act provides for a deposits protection fund, this part of the law is yet to take effect- more than ten years since it came to being. The rising number of cases of Saccos sinking with ordinary people’s savings is not just about weak-willed consumers. It is about weak regulation.

The Sacco Act is a very comprehensive piece of legislation covering nearly all aspects of prudential regulation, including minimum capitalisation for Saccos, insider loans, liquidity, regular inspection, and deposit protection.

However, the problem is that these laws are honoured more in breach than in practice. In the first place, the authority does not have enough inspectors to go round and look at the books of all these entities.

Secondly, the authority has taken too long to acquire the power and influence to impose tough sanctions, including deregistration and withdrawal of licences. We need a tougher regulator with powers to impose heavy fines, issue cease and desist orders, and capacity to compensate consumers for abuse. I propose comprehensive prudential laws and regulations. The rule of thumb should be that any entity that collects deposits from the public should be designated as a deposit-taking institution and, therefore, made to operate under strict laws.


Today, there are just too many shady entities and individuals that are collecting deposits from unwitting members of the public, and withimpunity- squandering it in conspicuous consumption and corrupt activities.

It is time state agencies dealing with corruption and exploitation of depositors put the spotlight on cow boy property developers.

The game is all-too-familiar: A smooth-talking developer will approach you with an opportunity to buy a plot in a major property project where the signature development and main attraction will invariably be a golf course surrounded by 300 high-end villas and first-world standard amenities, all built behind high security walls.

Invariably, the cowboy developer will propose to build all other ancillaries: Water supply systems, roads, electricity, swimming pools and a nursery school.


All that you are required to do is pay a deposit, typically, 10 percent of the value of the plot, and enter into an arrangement committing you to make instalments and complete payments within a year. Under the arrangement, you will be expected to raise money to build your own high-end villa to an approved design.

Months later, you realise the titles are not ready- the golf course is not happening, water, electricity and other infrastructure are not being built.

In my view, the way to stop these games is to designate all these cowboy developers as deposit-taking institutions so that they can be subjected to prudential regulations.

These cowboy developers have conned too many people especially Kenyans in the diaspora. There are just too many examples of half-completed high-end development projects where unsuspecting individuals paid millions in deposits, but have no title deeds many years after the deposits were paid.

The model used by the cowboys is as follows: Borrow money from the bank to buy and partition a coffee estate into plots, present the same land as security for the loan, and finally, use the cash flow from the deposits and from the pre-sales you collect from members of the public to start building roads, gates, perimeter fencing, the club house and preliminary work on the golf course.

With no money of his own, tribulations start for the cowboy the moment the depositors realise that work on the golf course, on the water, electricity and internal roads, is not progressing at all.

The depositors stop payment of instalments for the plots, plunging the cowboy developer into crippling cash flow problems. The unsuspecting individuals are left with the short end of the stick because deposits cannot be refunded while title deeds don’t exist.