Co-operative societies have been cautioned over the growing practice of placing members’ funds in unregulated firms, with the regulator warning that the trend is exposing savers to financial risk.
The Commissioner for Cooperative Development David Obonyo said in a circular that some co-operatives are exposing members’ funds to a “significant risk” by investing in unregulated institutions —a practice that is in breach of the Cooperative Societies Act and related regulations.
“The State Department for Cooperatives has noted with concern that some cooperative societies are placing members funds in unregulated institutions, thus posing a significant risk to members' funds,” said Mr Obonyo in a circular issued on December 23, 2025 and copied to the Sacco Societies Regulatory Authority (Sasra).
“This practice is inconsistent with the legal, fiduciary and prudential obligations imposed on co-operative societies.”
The warning comes after many saccos are exposed to loss of billions of shillings of deposits in the wake of fraud and mismanagement of their umbrella body Kenya Union of Savings & Credit Cooperatives (Kuscco) which is not regulated.
Section 45 of the Cooperative Societies Act requires cooperatives to invest or deposit its funds in stipulated licensed institutions such as banks, trusts funds and statutory bodies to safeguard members' funds.
In addition, rule 50 of the Co-operative Societies Rules bars cooperative societies from investing funds in non-core business except with the approval of the commissioner and by the general meeting through a special resolution.
The directive could force co-operatives in breach to divest from illegal investments to avoid possible penalties or sanctions against officials.
The Co-operative Societies Rules provide that if at any time, the Commissioner has reason to believe that the business of a co-operative society is being conducted in breach of the Cooperative Societies Act or “in a manner detrimental to the interests of its members,” to among other interventions appoint a suitable person to help the society to comply.
Mr Obonyo added that cooperatives have a duty to safeguard members’ savings and ensure that all investments are compliant with the law.
The warning comes at a time when some cooperatives have reportedly turned to private firms, informal investment schemes or unregulated financial entities in search of attractive yields. This has subjected them to the risk of losing money when such entities operate outside the oversight of regulators.
“In view of the foregoing, all cooperatives are hereby directed to comply with this directive in line with provision of the law,” the commissioner noted.
Sasra chairman Jack Ranguma noted in the 2024 Sacco Supervision Annual Report that 2023 and 2024 saw regulated saccos experience “financial turbulence and uncertainties” associated with the impairment of some of the financial investments they had made in the securities of some unregulated entities.
“The Authority is very conscious that there is a very tight symbiotic relationship between regulated saccos and the issuers of some of the unregulated investment instruments, while at the same time, a majority of the investments are historical and pre-date the Authority’s supervisory framework,” said Mr Ranguma in the report published last year.
The Sasra report shows that of the Sh53.57 billion investment in property, plant and equipment in the year ended December 2024, Sh7.84 billion was classified as “other assets.”
The regulator cautions that such opaque classification provides room for fraud and increased impairment of assets and must be discouraged as an imprudent practice.
