The Sacco bill may be well-intentioned but it poses two contentious provisions that seek to alter the foundation and character of co-operative societies in Kenya.
First, the bill intends to give special rights to a special group of individuals classified as “Social Impact members” who join outside the normal requirements of being a registered member, buying minimum shares and also make contributions but will rank equal with other members in respect to voting rights.
Second, the bill seeks to establish a special fund whose sole source is money received from “Social Impact members” and the intention is to extend credit to eligible persons to invest in start-ups and early stage financing of their ventures.
A bill is before the National Assembly seeking to amend the Co-operative Societies Act and Sacco Societies Act to broaden the roles of these economic institutions.
There is no doubt that Saccos, especially deposit-taking, need reforms. A number of co-operative societies are unregistered posing a systemic risk to the whole sector.
Saccos play a vital role in the economy; they largely dedicate all resources to meeting the borrowing needs of its members and affordable rates and therefore seen as better lenders because they stick to the relationship banking mode.
In Europe, co-operatives account for every large percentage of savings and loans. According to European Association of Co-operatives Banks, co-operative institutions held a total of 7.5 trillion Euros worth of assets and managed deposits worth 3.8 trillion and almost 4 trillion in loans outstanding in 2014.
For example, in France co-operatives institutions account for over 60 per cent of domestic deposits and almost 60 per cent of loans whilst in Netherlands the share exceeds 60 per cent, and about a third in Italy and Austria. In Germany, they account for about 20 per cent both deposits and loans.
In the US where they are more commonly referred to as Credit Unions, they have 100 million members and hold 8 trillion worth of assets.
In Africa, Kenya has the largest co-operative movement estimated to have over 22,000 registered co-operative societies with over 15 million members. 3.5 million are registered with over 5,000 deposit-taking Saccos which have more than Sh500 billion (over 50 per cent) in domestic savings and an asset base of Sh700 billion.
That can succinctly explain the general position of Co-operative Societies as economic institution in economies.
Moving on to the proposed bill presented at the National Assembly, the crux of it is to establish a special fund whose sole source are for money received from a special group of individuals who are not registered members but eligible for credit to invest in start-ups and early stage financing of their ventures.
The bill may be well-intentioned but it poses two contentious provisions that seek to alter the foundation and character of co-operative societies in Kenya.
First, the bill intends to give special rights to a special group of individuals classified as “Social Impact members” who join outside the normal requirements of being a registered member, buying minimum shares and also make contributions but will rank equal with other members in respect to voting rights.
All over the world, co-operatives are legal entities in which shareholders have the same amount of voting power irrespective of shares owned but the pre-requisite is to own the agreed minimum shares.
To sneak in members who do not own shares to have the same amount of voting power, even though its related to issues only about them, is to dilute the economic democracy of these institutions – registered members, strictly, deciding on the policy of the institution.
Second, the bill seeks to establish a special fund whose sole source is money received from “Social Impact members” and the intention is to extend credit to eligible persons to invest in start-ups and early stage financing of their ventures. In short, the amendment is to demutualize the co-operative institutions into a venture capitalist.
This maybe very well intentioned because start-up financing is an avoided territory but co-operative societies in Kenya already operate very high risk models to support this venture.
Nearly all co-operatives focus on growing their capital ratios through recruitment of new members who bring deposits but it becomes counterproductive because the new members seek admission so as to access loans placing more liquidity pressure on the Saccos.
According to a 2017 survey by the UK Aid-funded Financial Sector Deepening, Kenyan Saccos are largely insolvent, illiquid, devoid of effective accounting and control system and systematically failing to monitor or report loan delinquency.
Therefore, greater concern should be on strict regulatory supervision and fiscal reforms of co-operative societies before any fundamental changes are made to models running co-operative societies.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
