Savings and credit cooperatives (saccos) have cut dividend payouts and increased cash reserves to cover unexpected losses, pointing to the outcomes of heightened regulatory scrutiny that barred the societies from paying unrealistic dividends and bonuses to members.
Latest regulatory disclosures show that the capital adequacy ratio for deposit-taking (DT) Saccos edged up to 17.8 percent in the year ended June 2025 from 17.67 percent a year earlier, while that of non-withdrawable deposit-taking (NWDT)saccos rose to 18.52 percent from 10.88 percent.
The capital adequacy ratio for saccos is a measure of financial strength that indicates the amount of capital a cooperative has in relation to the risks it has assumed through loans and other assets. The ratio indicates whether a sacco has sufficient capital to absorb losses without jeopardising members’ savings.
The latest ratios are above the 16.29 percent for DTs and 8.16 percent for NWDTs that Sacco Societies Regulatory Authority (Sasra) had set for the sector during the review period.
“Targets surpassed due to increased income retention by saccos and regulatory restrictions on dividend payments,” says Sasra in disclosures to the Treasury ahead of preparation for the 2026-27 budget.
This signals that more saccos are heeding the regulator’s call for a more conservative balance sheet management.
Sasra, together with the Ministry of Co-operatives and the Commissioner of Co-operatives, have been pushing for improved capital planning, provisioning and investment governance. This pressure has forced saccos to step up their capital buffers.
Last year, the three directed sacco officials to stop paying unrealistic bonuses, dividends and interest, fuelling financial distress and insolvency or risk penalties and jail terms. They cautioned saccos against exaggerating income and loan interest to book higher surpluses and pay dividends.
The call for stronger capital buffers was amplified after the disclosure that saccos were staring at losing more than Sh8.8 billion after their umbrella body, Kenya Union of Savings and Credit Co-operatives (Kuscco), suffered Sh13.3 billion fraud.
The improved capital buffers suggest that NWDTs were under pressure to correct capital shortfalls quickly, especially after the Kuscco-related turbulence.
Unlike DT saccos, which already operate under relatively stringent capital rules, NWDT institutions have historically lagged in meeting capital guidelines due to their smaller size and limited revenue diversification.
Larger, well-capitalised saccos with diversified loan books are expected to continue building buffers comfortably. However, smaller societies may face difficulty balancing capital retention with member expectations for returns in a sector where members are traditionally accustomed to generous payouts.
“We are going to sustain regulatory intervention to sustain stability. The value proposition that saccos offer members goes beyond dividends and rebates.
Members enjoy loans at cheaper rates in comparison to other financial service providers and should not pressure for higher returns,” said Sasra acting CEO David Sandagi told the Business Daily.
“Several saccos were leveraging on external borrowing to pay dividends and rebates, leading to a mismatch between the cost of borrowing these loans and repaying. This led to improper accounting, leading to inflated revenues to cover such shortfalls.”
Lower payouts have allowed saccos to retain more earnings, strengthening their core capital positions at a time when lending risks remain elevated.
Sacco supervision annual report released in September showed saccos cut the average rate of dividends on share capital to 10.46 percent in the year ended December 2024 as they prioritised building stronger capital buffers over higher payouts to members.
The average rate of dividends on share capital dropped from the previous year’s 10.92 percent, marking the first time in three years that the payout has dropped.
The reduced distribution on share capital came in the period, saccos also reduced the average interest on deposits to 7.14 percent from 7.45 percent in the previous year.
The conservative approach to dividend and interest payment resulted in a marked increase in the capital reserves and retained earnings, which grew by 17.55 percent in 2024 to reach Sh197.54 billion compared with a growth rate of just 6.92 percent in 2023.
Despite the drop in distribution to members in percentage terms, there was a growth in payout in absolute terms, with the figure rising by 8.5 percent to Sh59.74 billion last year from Sh55.06 billion in 2023.
