Savings and Credit Cooperative Organisations (Saccos) recoveries from struggling firms slowed to Sh455 million in the year ended June 2022 as employers continued to battle liquidity crises.
The latest recoveries are a drop from Sh900 million that was received in the year ended June 2020 and the peak of Sh1.01 billion that was collected in the year ended June 2019.
The performance in the fiscal year to June 2021 was not readily available.
The slowed recovery, disclosed in the Treasury document that is setting the stage for the 2023/2024 budget, coincided with the period in which many firms operating in multiple sectors such as hospitality and education continued operating on tight purses.
The remittances offer partial relief to the many Saccos whose operations are usually hampered by the growing number of employers who deduct money from workers’ salaries but fail to remit it to cooperatives.
Sacco Societies Regulatory Authority (Sasra) data showed Saccos were owed Sh3.4 billion by the end of September 2021 with top culprits being public universities and tertiary colleges (Sh1.29 billion) and county governments and assemblies (Sh640.2 million).
About 63 percent or Sh2.16 billion of the non-remitted funds is related to loan repayments meaning that Saccos have had to classify such loans as non-performing.
Saccos are then forced to make provisions for the non-performing loans, thereby reducing the surpluses available for dividend distribution.
Cooperatives conventionally operate under the concept of remittances of deductions from employer institutions which is recognised in the Co-operative Societies Act.
Section 35(1) of the Act requires employers who deduct employees’ money for payment to Saccos to remit the money within seven days of making the deduction.
Employers who fail to remit the money within seven days “shall be liable to pay the sum deducted together with compound interest thereon at the rate of not less than five percent per month,” according to the Act.
Delays in remitting the money also reduces the amount available for lending to members since Saccos usually depend on members’ contributions to grow the loan book.
Employees usually issue instructions to their respective employer institutions to directly make periodic deductions from their salaries or other incomes and remit directly to their respective Saccos.
The first category of deductions is those meant to build members’ non-withdrawable deposits --popularly known as the Bosa deposits which serve as collateral for loans.
The second category of deductions is those meant to repay loans. They are popularly known as loan repayment deductions.
Sasra in 2020 said it was working with Saccos to review the effectiveness of the prevailing legal and operational framework on remittances by employer institutions.
The outcome of the consultation is yet to be disclosed even as Sasra calls for reduced reliance on direct employer deductions to the bare minimum and only where necessary.
Sasra is instead advising saccos to use withdrawable deposits savings accounts (Fosa) held by members within their various Saccos to deny struggling firms opportunities to appropriate employees' money.