Member deposits in savings and credit co-operative societies (saccos) grew by Sh76 billion in the year to June 2018, new data by the Treasury shows, reflecting an improving investment culture among Kenyans.
Total member deposits increased to Sh766 billion over the period compared to Sh690 billion the previous year — further raising the profile of saccos in the financial sector.
The Treasury attributed the increase in savings to stricter enforcement of governance and accountability standards in co-operatives and the commencement of operations by the National Youth Service (NYS) Huduma Sacco.
Some analysts said that the consistent growth in sacco deposits could be linked to high dividend payout and an increasing number of members opting to leverage on their savings for borrowing to avoid the inconvenience of providing collateral.
"All that sacco members need to do is to save some cash and leverage on that to borrow. Also, returns on annual basis are higher for some of the saccos than commercial banks will offer," said Patrick Mumu, a research analyst with Nairobi-based investment bank Genghis Capital.
The Treasury also said that some firms, which had outstanding debts to saccos paid back Sh1.005 billion as at the end of last June 2018 compared to Sh911 million in the previous fiscal year – an improvement of 10.3 per cent or Sh94 million.
Several county governments are among those that owed saccos unremitted member contributions.
The Treasury said the improved clearance of arrears owed to the societies followed the introduction of specimen signatures for those remitting money through banks as well as closer tracking by the Sacco Societies Regulatory Authority (SASRA). The update shows that most saccos also raised their core above the required 10 per cent—reversing a trend from 2018 when the regulator cracked the whip on some of the societies for non-compliance.
Many saccos had in the past failed to adopt risk management standards, leading to defaults and flouting of prudential requirements such as those on capital adequacy and liquidity. Tight supervision by the regulator has, however, seen improvements in compliance. The institutions have also come under a stricter regime following the introduction of the International Financial Regulation Standards (IFRS 9) that have placed more demands on maintaining higher capital, asset quality, earnings and liquidity.
SASRA in 2018 issued 11 saving societies with restricted licences for failure to maintain the prescribed core capital of Sh10 million and above.
The Sacco Societies Act, 2010 gives the regulator powers to restrict the licence of a sacco that fails to maintain capital adequacy ratios, including prohibiting affected entities from accepting further deposits or other lines of credit.
Apart from improved compliance with core capital requirements, the Treasury data further shows that the number of audited saccos stood at 3,752 compared to the targeted 4,500 -- a development that was attributed to the failure by three counties to conduct audits.
Despite the achievements, the Treasury reported that the installation of an integrated information management system for co-operatives had been delayed due to lack of funding. The saccos were supposed to have achieved a 40 percent completion by last June. The target was to register 1,600 new saccos by the end of June last year, but this was not achieved as 1,237 such entities were registered.
There was a plan by the State Department of Co-operatives to develop and implement a risk-based supervision framework to ensure that saccos and other cooperatives improved and maintained their operations with the lowest chances of collapse. The plans were, however, not fully realised, partly due to funding challenges.
As part of plans to strengthen governance in the societies, proposed laws under the Sacco Societies (Amendment) Bill also target to have top managers undergo fresh vetting by the regulator to ensure compliance with prudential and ethical standards. This includes members of the board of directors, the supervisory committee, chief executive officer and senior management staff such as heads of the information communication and technology and internal audit as well as those who lead credit management and finance functions.
The "fit and proper test" was proposed by a taskforce formed by the Industry, Trade and Co-operatives ministry.
Additionally, the saccos will be required to report every quarter’s financial performance to the regulator as one way to improve transparency.