Capital Markets

Saccos warned against ‘abnormal’ dividends in bid to retain members

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Kenya Union of Savings and Credit Co-operatives managing director George Ototo. FILE PHOTO | SALATON NJAU | NMG

Savings and Credit Cooperative Societies (Saccos) have been cautioned against declaring abnormal dividends in a bid to retain membership. 

The Kenya Union of Savings and Credit Cooperatives (Kuscco) managing director George Ototo noted that it is unsustainable for the financial institutions to pay out huge returns to members while struggling to meet their overhead costs. 

“In the long run, a number of Saccos are being forced to resort to borrowing in order to stay afloat,” he said on Friday during the 45th annual delegates meeting of Invest and Grow (IG) Sacco. 

Read: Banks, saccos double size of subsidised mortgage to Sh8m

“Saccos should self-regulate themselves and avoid plunging into a debt crisis which could lead to them collapsing,” he said. 

Underlying the need to have Saccos retain cash in order to serve their members better, the boss of the umbrella body for Saccos raised concerns that the push for higher dividends is risking the survival and growth of Saccos.

Some thrift institutions have announced plans to keep a lid on the returns paid to members in order to strengthen their capital base. 

Harambee Sacco, for instance, says it will pay higher dividends to members on share capital and cap payouts on deposits at eight percent for the next three years as the institution seeks to comply with capital requirements.

The Sacco has proposed the changes in a bid to entice members to increase their share capital as opposed to ramping up their savings whose dividend rate will now be capped at eight percent for the next three years.

The move comes at a time when the Sacco, which is majority owned by civil servants, remained in breach of the legal requirement where the institutional capital should not fall below eight percent of the total assets.

Harambee Sacco’s ratio of institutional capital to total assets stood at 5.3 percent in the financial year ended December, up from 5.1 percent in 2021.

“The management is proposing an incremental rate of dividends on share capital and a ceiling of eight percent on interest on deposit for the next three years in order to be able to retain and build reserves to meet this critical ratio,” the sacco says in its latest annual report.

Institutional capital refers to the core capital of a Sacco that no individual member can claim.

Read: Harambee Sacco takes extra Sh1.1bn loan

The Sacco declared dividends on member deposits at a rate of eight percent for the year that ended in December 2022, up from seven percent in 2021 while payouts on share capital will jump to 10 percent at eight percent.

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