The government targets to manage appointment of sacco directors and restrict their term limits as part of reforms to improve corporate governance in the entities that recently hit headlines for the wrong reasons, including embezzlement of members’ savings and failure to refund share capital of those who exited.
The Ministry of Co-operatives and Micro, Small and Medium Enterprises (MSMEs) Development says the sacco-subsector which holds over Sh1 trillion worth of assets will also be required to deploy multiple auditors to forestall incidences of bias which result in financial statements not reflecting the true state of financial health of the saccos.
“Good governance by members includes appointing external auditors with professional and organisational capacity to protect the interest of members. There is no reason why a Sh10 billion asset sacco should be audited by one partner. This is the reason affecting independence and objectivity of the auditor,” Cabinet Secretary Wycliffe Oparanya, told stakeholders from the co-operative movement in Nairobi on Wednesday.
The government’s latest proposals come in the wake of the loss of billions of shillings worth of members’ funds at the once giant teachers sacco (Metropolitan Sacco) and the Kenya Union of Savings and Credit Co-operative (Kuscco).
The government fired the board of Kuscco in May this year (2024) after a review by an American audit firm Grant Thornton disclosed misappropriation of member funds, illegal withdrawals, cash transfers, and engagement in illegal or unlicensed activities, which cost the organisation over Sh6 billion in losses.
“We feel as a government we cannot sit and watch that happen. That is why we think we need to regulate the way members are chosen. We are thinking of having term limits for the officials, some have been there for as long as 30 years,” he says, adding that the Cooperative Bill, currently before parliament will play a critical role in addressing this.
The Sacco Societies regulatory authority (Sasra) disclosed through its latest annual supervision report (2023) that the majority of complaints from Sacco members have continued to relate to delayed or failure to refund savings or deposits to Sacco members upon their withdrawal from the membership.
The government is also considering a proposal for an amendment to the Sacco legislation to implement a deposit protection scheme for members of collapsed Saccos and boost confidence in a sector bogged down by corruption and mismanagement.
Kenya’s Sacco Societies Act accented to in 2008 provides for a deposit insurance fund for credit unions but the scheme has been established to date.
The Sacco Societies Act, Section 55 provides for the establishment of a Deposit Guarantee fund for the Sacco sector to protect members’ deposits, but not shares, up to an amount of Sh100,000 if an institution collapses as a result of governance and liquidity challenges.
The number of regulated saccos declined to 357 in 2023 from 359 in 2022, but the total membership of increased by 6.57 percent to 6.84 million members, up from 6.42 million in 2022.
The regulated Saccos gross loans grew by 11.5 percent to Sh 758.57 billion from Sh680.35 billion in 2022, depicting increased demand for their credit services.
These loans were mainly funded by savings and deposits mobilised from the membership which increased by 9.95 percent to Sh 682.19 billion in 2023, thereby cementing the place of Regulated Saccos as critical mobilizers of domestic savings.
The gross loans within the regulated Sacco industry grew at a rate of 11.5 percent to Sh758.57 billion in 2023 from Sh 680.35 billion in the previous year.
