Due diligence: How do I know if my money is safe in a sacco?

In saccos, members benefit through dividends, which are paid on their share capital as a return on ownership, and rebates, which are refunds on the interest paid on loans, meaning both savers and borrowers get to share in the cooperative’s success.

That sense of ownership has sparked loyalty and expansion, but it also raises questions about whether an investor is prone to the risk of losing capital.

When asked whether Kenyans should worry about their savings, George Ochiri, CEO of Harambee Sacco says, “I would like to confirm that your money is safe.”

Why saccos remain stable

According to the Sacco Societies Regulatory Authority (Sasra) 2023 supervision report, Kenya’s deposit-taking and regulated saccos hold Sh971.96 billion, and the member deposits grew by 10 percent to Sh682.19 billion in 2023.

Dr Ochiri emphasises that saccos, especially those regulated by Sasra, operate under strict financial regulation that champions their safety.

“Your first dropping point should be, is this sacco under any form of regulation? And you will find by far and large, saccos under regulation are disciplined because they have to operate as per specified parameters.”

These strict regulation ensures that saccos have financial health ratios. One of the measures, Dr Ochiri says, is the institutional capital ratio, which indicates the financial cushion available to absorb shocks.

“Any time that ratio is above eight percent, that Sacco is stable.”

Despite the industry and social media speculation of some entities, there has been mass withdrawals. “Members are not leaving, of course, it’s bad news to them, but that is not the basis for quitting their saccos,” he says

The dividends question

One of the biggest attractions of saccos has been their competitive dividends and interest payouts. But how secure are these returns in the face of financial crisis?

Dr Ochiri acknowledges that some saccos may adjust payouts: “The guidance there has been to reduce some dividend pay, perhaps, to hold back some of the money to be able to cover for the losses.” However, he insists this is only a challenge of the sacco and not a sign of collapse in member benefits.

Beyond the numbers, Dr Ochiri says saccos also thrive on the principle of solidarity. An example he gives is industry mechanisms being developed to help smaller saccos stabilise when they face liquidity pressures.

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One of the innovations, he says is Sacco Central, which is a regulator-led platform that is designed to facilitate inter-lending among saccos, just like how interbank lending does for commercial banks.

“Sacco Central will offer the opportunity for saccos to interlend.”

On the flip side, the broader cooperative movement has its own challenges, but the setbacks have also spurred reforms. The sacco leaders, Dr Ochiri says are frequently to review risks and set stronger compliance frameworks.

“The good news is, just like the banks, we are going to have a fallback, a deposit fallback where if a sacco collapses, then there is a place, a fallback to a sacco member.”

This is timely, especially given that the country is pushing new legislation.

“Kenya is currently pushing for new legislation, the Revised Sacco Societies Act, which is before the Senate. The Act seeks to strengthen governance, accountability, and member protection, especially after concerns of mismanagement and fraud in some cooperatives. Once passed, it will tighten regulatory oversight by Sasra and ensure that member deposits are safer.” Dr Ochiri says.

Making saccos work for you

When it comes to personal finance, most people want to know whether there is a limited prescription on how much money they should put in a sacco. Belinda Koome, the founder of Azara Wealth, believes the real question should be on the reward from the sacco.

“Rather than focusing only on the limit, you should worry more about what solutions the sacco provides that can strengthen your financial plans?” she says.

Ms Koome points out that the value of saccos lies in their savings model and in the range of products they offer to transform their members’ financial wellbeing.

“For example, saccos have supported members through education loans, enabled home and property ownership through development loans of up to three to five times members’ deposits, and saccos have begun speaking to members about investment loans,” she says.

“I tried one out as an investment loan and started receiving coupon payments that have serviced the loan. This shows that the question should not just be how much to save, but how strategically to use sacco products to grow wealth while aligning with your goals,” she adds.

Consequently, in an age where fintech apps and digital investment platforms are rapidly changing how people save and invest, saccos are facing the pressure to remain competitive while still ensuring their member safety. Ms Koome argues that the key lies in liquidity discipline and innovative, sector-aligned growth.

“Liquidity management starts with reviewing your current cash flows and obligations. After making provisions for loan repayments, consider reinvesting surplus cash into short-term and near-cash instruments.”

But saccos, she notes, also have a unique advantage that digital platforms cannot replicate when it comes to their ability to evolve around the industries they are rooted in.

“Agricultural saccos could leverage their agribusiness expertise to transform into agritech hubs. Financial-sector saccos could evolve into centres of financial education for members. Energy saccos might explore renewable or green energy projects. Blue economy/climate impact opportunities could be tapped by saccos in coastal or lake regions, or those found in the energy sector.”

Those who are looking to join, or stay in a saccos, Dr Ochiri advices that due diligence is key. Even though there are large, well-capitalised saccos he adds that size alone should not be the only factor.

“Definitely, you also want to look at the financial stability, and they are not very complicated. Don’t worry about the big balance sheet of Sh60 billion or Sh40 billion. If you go to the prudential ratios, there’s one called institutional capital. That one tells you how much resource does that particular saccos have.”

Oltele Lemek, head of investments and wealth advisory services at Moran Capital Management, explains that while saccos must maintain healthy levels of capital and liquidity of at least 15 percent as they also undergo regular audits and reporting, members do not enjoy the same deposit insurance protection that banks offer.

If a bank collapses, depositors can recover part of their money through the Deposit Insurance Fund. Saccos , on the other hand, do not have this safety net which makes their oversight and accountability more important.

This is where Sasra comes in. According to Mr Lemek, he says that in practice, this means that Sasra not only licenses saccos but also carries out inspections, enforces compliance and revokes licences where necessary.

He is also quick to point out that although Sasra is a strong regulator, it has its limits: “It has no deposit insurance.” The absence of this guarantee places more responsibility on members to choose wisely where they save.

Stability indicators

How can members tell whether their sacco is stable or heading into troubled waters?

“If a sacco cannot provide timely services, avoids scrutiny through audits or annual general meetings, reports figures that seem too good to be true, or consistently changes leadership, members should be concerned. If there is also high external borrowing (25 percent assets) or rising loan defaults, and lending heavily to insiders is also a red flag,” Mr Lemek says.

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