The government has moved to protect interest of members in the Savings and Credit Cooperative Societies (SACCOS) following growing cases of mismanagement leading to the total or near collapse of some entities.
In recent years, several SACCOs in Kenya have collapsed, often due to financial mismanagement, fraud, and unsustainable practices. Some SACCOs have been caught falsifying accounts, declaring non-existent profits to attract new members, and paying large dividends to retain them, leading to unsustainable debt and potential collapse. At KUSCCO, the umbrella body for SACCOs, a forensic audit revealed financial misappropriation, prompting the organization to take steps to address the issues and strengthen its operations.
Part of the reforms announced by the Ministry of Cooperatives and MSMEs Development include inauguration of five-member committee of experts to review the Sacco Societies Act and the formation of a new board of directors to prepare KUSCCO’s evolution into a national cooperative federation.
The five-member committee of experts will evaluate relevance and effectiveness of the current law. It is also tasked with aligning the law with Cabinet-approved policy directions including the establishment of a central liquidity facility, the creation of a Sacco Deposit Guarantee Fund and the development of a shared services legal and administrative framework.
“The ministry remains committed to promoting inclusive financial systems through cooperative-based structures. The ongoing legislative process, particularly the Cooperative Societies Bill, 2024 will further reinforce good governance and sector-wide stability,” Cooperatives and MSMEs Development Cabinet Secretary, Wycliffe Oparanya said recently.
At KUSCCO, a transition board of directors will lead the restructuring of the entity, oversee asset recovery and protection of members interest, in a 2-year term assignment.
In December 2024, the government directed SACCOs to be prudent, and not only pay out dividends and interest when they have no loan arrears, pending bills, or other pressing obligations. This was meant to stop a rampant practice where societies were borrowing loans to pay out dividends and interest to members, creating a vicious debt cycle.
The December directive also mandated societies to hold their Statutory Reserve Funds should be held in separate accounts and can only be invested in low-risk portfolios.
The Cooperatives Bill
The Co-operative Societies Bill, 2024, currently before the Senate gives the Commissioner for Cooperative Development sweeping powers to conduct inquiries into a Cooperative’s operations, finances, and by-laws. They can do so on their own initiative or upon request from the County Director for Cooperatives, the Authority, a liquidator, creditors, or at least one-third of the Cooperative’s members.
If irregularities are found, the Commissioner may dissolve the board of directors and appoint an interim board for up to ninety days. Non-compliance with requests for records can result in fines, suspension, or removal of officers and members.
Proposals in the Bill require cooperatives to keep the books of accounts at the registered office of the Cooperative or at such other place as may be determined by the cooperative and shall be at all times available for inspection by members.
The Cooperative’s financial statements must further conform to the International Financial Reporting Standards (IFRS) and include information on the financial position, income, changes in equity and cash flow. These statements must be approved by the board of directors and authenticated by the chairperson and any two other members of the board of directors.
Additionally, an auditor shall not present the audited financial statements at the annual general meeting unless the accounts have been approved by the Commissioner in the case of Cooperatives, and the Sacco Societies Regulation Authority in the case of a Sacco.
These ongoing and proposed reforms are meant to foster stability in one of Kenya’s most critical sectors, where 6.84 million people as of 2024 invest hard-earned savings and get credit at easier terms than they would from commercial banks. They are also pushing to restore trust in a sector where recent events have progressively eroded the most important building block of any financial sector.