Public universities and other tertiary colleges failed to remit nearly Sh1 billion deducted from payrolls to saccos last year, subjecting employees to penalties on prevailing loans and tighter lending terms in the future.
Regulatory disclosures show that public institutions of higher learning did not remit Sh958.07 million to saccos, overtaking counties as the biggest defaulters in the review period.
The amounts deducted from payrolls and not remitted grew more than half (54.40 percent) over Sh620.52 million in the prior year, bucking a downward industry trend.
Overall, employers owed Saccos Sh2.59 billion in non-remitted cash, a modest 3.98 percent drop compared with Sh2.70 billion the year before, according to the Sacco Supervision Annual Report for 2023.
This comprises Sh1.68 billion in loan repayments and Sh909.49 million in monthly savings or back office (Bosa) deductions from pay slips.
“The public universities and tertiary colleges owed the Regulated Saccos the highest proportion of non-remitted deductions amounting to Sh958.07 million, representing 37 percent of the total non-remitted deductions,” Sacco Societies Regulatory Authority wrote in the report published Wednesday.
“The performance and growth of the 10-Universities based Regulated Saccos which draws the bulk of their membership from the public universities and tertiary colleges thus continue to be undermined as evidenced by a high NPL [non-performing loans] ratio compared with other Government-based clusters of Regulated Saccos” it added.
The universities and colleges failed to remit Sh487.79 million in monthly Sacco savings for employees, nearly two-fold (167.53 percent) surge from Sh182.33 million in 2022
Loan repayments not disbursed to saccos rose 7.33 percent to Sh470.28 million from Sh438.18 million the year before, according to the Sacco regulator.
Failure or delay to wire Sacco loans deducted from pay slips exposes the university staff to penalties, while extreme cases result in the auctioning of property used as collateral and lawsuits in small claims courts.
Non-remittance of monthly contributions, on the other hand, prompts the Saccos to demand additional security to guarantee loans for affected members.
Universities as well as Technical Vocational Education and Training (TVET) institutions have in the past battled a serious cash crunch, hitting crucial operations and affecting the timely payment of salaries for some entities.
The Ruto administration has pledged to undertake a raft of reforms to end the cash flow challenges, introducing a funding model it says will restore financial sustainability in public universities and TVETs.
Under the funding framework, which started in September 2023, the government sponsors students through scholarships, loans, and bursaries which it says will solve inequitable capitation challenges in the previous framework.
The State funding to universities was previously based on the differentiated unit cost model under which institutions get allocations based on the number of undergraduate students registered on the regular programme and the courses they take.
Under the model, the government was expected to cater for 80 percent of the unit cost, while the remainder was borne by students and institutions.
“Funding TVET and Universities in Kenya over the years has continued to experience challenges over time,” the Treasury wrote in the 2024 Budget Policy Statement.
“The new model for financial support is student-centered and deploys a rigorous, impartial means testing instrument to establish their level of need, which then becomes the primary consideration in allocating scholarships and loans.”
The Sasra report shows public institutions of learning were the biggest defaulters in 2023 followed by counties (Sh865.12 million), companies in the private sector (Sh377.39 million), and State Corporations (Sh162.89 million).
The continued non-remittance of deductions from salaries has prompted the Saccos regulator to issue a guideline to universities-sponsored saccos to ensure members process their salaries through Front Office Service Activity (Fosa) accounts before they get loans.
“We have urged saccos that they only deal with the member when it comes to loan repayment. If a member wants a loan, he must take responsibility for repaying the loan. Don’t tell the employer to deduct and remit to the sacco,” Sasra chief executive Peter Njuguna told the Business Daily in a past interview.
“That has worked well because now the saccos only give you a loan when you have an account with them where you either remit the money directly or bring your salary point to the Sacco Fosa.
"This is because the issue has been you are being caught because there’s a third party who your sacco has appointed to be the one deducting savings and loans, but who has not been remitting.”
