Sasra seeks adviser to guide sacco deposit insurance fund set up

Members of the Mwalimu National Sacco queue to access their savings over the counter. A sacco deposit insurance fund will guarantee up to Sh100,000 of deposits. PHOTO | FILE
Members of the Mwalimu National Sacco queue to access their savings over the counter. A sacco deposit insurance fund will guarantee up to Sh100,000 of deposits. PHOTO | FILE 

Kenya is seeking a fresh consultant to jump-start plans to set up a deposit insurance scheme for savings and credit cooperatives deposits.
The financial safety net will provide protection to sacco deposits up to Sh100,000 a member and the advisor is expected to guide on the legal and regulatory framework for the scheme dubbed Deposit Guarantee Fund.

The Sacco Societies Regulatory Authority (Sasra) had in 2013 retained Mr Carlos Alba Prado as the consultant to assist in the establishment of a deposit guarantee fund, but the findings were never made public.

Sasra chief executive John Mwaka said the hunt for the consultant is at its tail end and the winner of the tender will be announced soon.

“The consultant will conduct a technical review of the legal and financial framework, and benchmark with global standards on establishment of a deposit insurance fund for deposit-taking saccos,” Mr Mwaka told the Business Daily.

“Given the nature of saccos and that they deal with members, exposure is very minimal,” he said in an interview.

Kenya’s Sacco Societies Act, assented to in 2008, provides for setting up a deposit insurance fund for credit unions, but the scheme has never been established to date. Sasra started operations in June 2010.

The study and roll out of the saccos’ deposit insurance scheme is expected to take a period of 18 months, according to the regulator, meaning the fund may be up and running in the course of next year.

“The consultant will support in the setting up of the deposit guarantee fund—once the necessary legal amendments have been effected—which will include provision of assistance in setting up the fund, training of trustees and staff, drafting regulations to effectively operationalise the fund,” reads the tender documents.

Deposits held by credit unions stood at Sh237.4 billion as at December 2015, a compounded annual growth rate of 18.5 per cent over the last decade.

Every deposit-taking credit union shall contribute to the Deposit Guarantee Fund an amount to be prescribed by the Finance (Treasury) minister, according to the Sacco Societies Act.

The successful consultant will advise on the rate of deposit premiums to be paid by saccos, and model projected risk of the sector to inform the fund size.

Underwriting sacco deposits will see credit unions join the league of banks and insurance firms, which have schemes to compensate depositors and policy holders in the event of the financial institutions’ collapse.

Deepak Dave, a risk management expert, argued that the planned scheme should be housed at the Kenya Deposit Insurance Corporation (KDIC) because a new agency may cause turf wars and increase costs.

“This way there is a chance to keep the single regulator point of view of the overall sector and also keep the cost of the premium lower. The lower risk of saccos’ asset base can translate to a lower premium on deposits,” said Mr Dave in an interview.

The KDIC underwrites bank deposits to the tune of Sh100,000 per account holder. Banks and deposit-taking micro-financiers currently pay the KDIC premium assessed at 0.15 per cent of total deposits held. The deposit underwriter had a fund worth Sh62 billion as at March 2016.

The Policyholders Compensation Fund reimburses Sh250,000 per policyholder in the event an insurance company is declared insolvent.

Both policyholders and insurance firms contribute 0.25 per cent of premiums payable towards the underwriters’ fund.

No deposit-taking sacco has been declared insolvent since setting up of Sasra in 2010.

However, Kiambu-based Jijenge Sacco, formerly Macadamia Sacco) has been put under statutory management and four others—Banana Hill Sacco, Ntiminyakiru Sacco, Ogembo Sacco, and Isiolo Teachers Sacco have lost their deposit-taking licences.