Sasra chief executive officer Carilus Ademba. The regulator has the option of issuing sanctions against Saccos that do not meet requirements. File
What you need to know:
Requirements come into force today after the closure of a four-year window.
Banking services offered by 28 savings and credit societies may be disrupted from today when the sector regulator is expected to announce actions against Saccos that have failed to meet capital requirements.
The requirements, which come into force today after the closure of a four-year window for compliance with the Sacco Societies Regulatory Authority (Sasra), will require laggards to stop collecting cash from members.
“They will have to close their Front Office Service Activity (Fosa) and revert to the back office,” said Sasra chief executive officer Carilus Ademba yesterday.
However, front and back office services in Saccos are so integrated that the regulator may find it difficult to enforce the rule without jeopardising the existence of Saccos altogether. “The challenge is that operations are so intertwined that closure of one could push the other to close,” said Mr Ademba.
He added that the list of affected Saccos would be released today. The regulator has the option of issuing sanctions against Saccos that do not meet the requirements, such as freezing dividend payment and prohibiting them from taking deposits from the public.
Such actions, however, would erode public confidence in the institutions, explaining why the regulator may view keeping open the back offices of uncompliant Saccos a lesser evil.
The regulator had given the credit unions a four-year grace period to raise their capital levels to the statutory minimum, which included institutional capital — defined as retained earnings — at eight per cent of the total assets.
The threshold of institutional capital was difficult to achieve as most of the Saccos had a history of paying out all their profits in dividends. Sasra also requires that Saccos’ core capital be at least Sh10 million and not less than eight per cent of total deposits.
Two months ago, 79 Saccos had not complied with the new regulations. Sasra recently eased the parameters used to calculate the capital base of the unions to avert a crisis after the regulations were effected.
The regulator made amendments on supplementary capital to include revaluation gains. Mr Ademba said Saccos that revalued their assets through professionals were allowed to add on the extra value as capital.
Sasra also agreed to recognise share capital held in Co-operative Bank, CIC Insurance and Sacco’s umbrella body, Kussco, as capital. The decision was estimated to boost the societies’ capital by an estimated Sh10 billion. Saccos are now pushing for recognition of equity investments in other reputable businesses to be recognised as capital to help them remain above the statutory requirements.
The unions are also pushing for dropping of institutional capital as a measure of stability to bring the sector in line with capital requirements for banks. “It is therefore proposed that the Regulations 2010 be amended to remove institutional capital as a capital adequacy measurement,” reads part of the recommended amendments on the Sacco regulations.
Most Saccos withheld dividends to their members in the past three years so as to comply with the demand on institutional capital. Front office services are attractive to Saccos as they earn them transaction income.
Sacco executives have supported the regulations noting that they have given the unions financial strength to introduce new products such as mortgage loans and investment in unquoted companies.Improved liquidity ratios have also helped the Saccos cut their borrowing from commercial banks.
