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Economy

Regulator offers Saccos a lifeline on capital rules

Sacco Societies Regulatory Authority (Sasra) chief executive officer Mr Carilus Ademba. Photo/FILE
Sacco Societies Regulatory Authority (Sasra) chief executive officer Mr Carilus Ademba. Photo/FILE  

Co-operative societies’ regulator Sasra has agreed to recognise Saccos investments in national co-operative organisations (Naccos) as part of their core capital, opening a window that could help the lenders meet new statutory requirements that come into effect in June.

Sasra has sent the societies a notice indicating that it would recognise share capital held in Co-operative Bank, CIC Insurance and the umbrella body Kussco as part of core capital, a decision that is expected to boost the societies’ capitalisation by an estimated Sh10 billion.

“The authority advises that any equity investment in National Co-operative Organisations (Naccos) shall not be deducted when aiming at the core capital of a Sacco society and as a result we expect a lot of compliance,” said Sasra chief executive Carilus Ademba.

Shareholding in other companies, whether listed at the securities exchange or not, will be treated as illiquid assets and will not be factored in during computation of a Sacco’s capital, the notice says.

The concession is critical to the survival of hundreds of Saccos, which have been struggling to meet the stringent capital requirements since the new rules came into force two years ago.

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It also saves institutions in which Saccos hold large stakes from mass exits as the Saccos liquidate their investments to help meet the new capital requirements.

Mr Ademba maintained that societies that will not have complied with the new regulations would be forced to close their cash deposit and withdrawal operations - commonly known as front office operations, from June 17.

The majority of Saccos have been hoping that Industrialisation secretary Adam Mohammed would initiate amendments to the law to allow for an extension of the compliance deadline, but that now appears to be impossible given the lengthy parliamentary processes.

Mr Ademba said 79 Saccos were yet to comply, but 49 were under review with the likelihood of being licensed leaving 30 in the red.

Sasra requires Saccos to maintain a core capital base of at least Sh10 million and institutional capital of not less than eight per cent of total deposits.

The regulator has the option of imposing sanctions on Saccos that do not meet the requirements such as freezing dividend payments and prohibiting them from taking deposits.

Sacco managers backed the concession as critical to the industry’s health, saving it from a looming turbulence that non-compliance of a large number of operators would have caused.

“It will enable many Saccos to comply and will improve performance in other standards such as dividends and rebates,” said Stima Sacco chief executive Paul Wambua. Increasing the Saccos’ core capital through the inclusion of the shareholding increases their deposit acceptance level, which is pegged on their capitalization.

The move also strengthens the Saccos’ capacity to pay dividends as they do not have to retain profits to be compliant.

The regulator had initially rejected the inclusion of share capital in the calculation of core capital, arguing that they constitute illiquid asset mostly held in the form of long-term investments.

Sasra also argued that not all shares earn income and can be suspended from the exchange in future.

This blanket classification of company shares as illiquid assets had squeezed Saccos, such as Maisha Bora, out of society- founded institutions.

Maisha Bora Sacco advertised its three million shares in CIC Insurance in local dailies last year after encountering an illiquid over-the-counter market for the stock.

The shares, which were held through the Co-operative Insurance Society, could only be sold over-the-counter to another Sacco, in accordance with a five year lock-in agreement that the co-operative signed during its listing at the Nairobi Securities Exchange in 2012.

Co-operative Insurance Society has a 74.3 per cent stake in CIC Insurance while the Co-operative Society Limited another umbrella investment body has a 65 per cent shareholding in Co-operative Bank.

Large Saccos are also major beneficiaries of the reclassification of the shares because it improves their financial investments ratio in comparison to core capital.

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