Kenya’s national regulator for saccos is seeking more powers to tame the trend of troubled credit and savings organisations going bust without recourse.
The Sacco Societies Regulatory Authority (SASRA) is reacting to a number of credit and savings organisations who have recently fallen into trouble over bad lending habits.
Two key organisations; Metropolitan National Sacco and the giant Kenya Union of Savings and Credit Co-operatives (Kuscco) have faced members’ wrath after encountering losses the regulator says could have been prevented.
The latest disclosure by the sacco regulator came as the Cabinet approved implementation of a deposit guarantee fund (DGF) to pay off victims of collapsed saccos as part of reforms aimed at restoring confidence in subsector.
It followed the collapse of the teachers’ Metropolitan and the saccos’ umbrella body (Kuscco) over massive embezzlement of members funds by directors.
SASRA’s chief executive Peter Njuguna told The EastAfrican that after the proposed fund comes into force, there will be more discussions at the board of trustees (BOT) level to expand its mandate to risk assessment, early intervention and resolution of issues.
The current Sacco Societies Act (2008), which is a subject of a parliamentary amendment, allows the sacco deposit guarantee fund (DGF) to operate under a model called ‘Pay Box.' It means the fund is only responsible for the compensation of protected deposits after failure of a sacco.
If the new proposal is approved by the DGF’s board of trustees, the fund will be altered from pay box to a risk minimiser where troubled saccos would be detected much earlier and appropriate measures taken to resolve them before they collapse.
“We need the DGF to have more powers to continuously assess the operations of the saccos by looking at other financial indicators beyond the deposit liabilities,” Njuguna said in a phone interview, suggesting capital adequacy, liquidity positions and asset quality which he argued will help take early intervention.
Risk mitigation could include mergers and acquisitions, injection of fresh capital from a stabilisation fund and change of governance structures.
“We shall look for the least-cost option of resolving an institution without denting the confidence in the co-operative sector. It (risk minimisation model) actually gives us more powers to strengthen our prudential regulations,” says Njuguna.
The Sacco Societies Act provides that every sacco should maintain a core capital of not less than 10 percent of total assets, a core capital of not less than eight percent of its total deposit liabilities and an institutional capital of not less than eight percent of its total assets.
It also sets the minimum core capital for saccos at Ksh10 million ($77,519.37).
President William Ruto’s Cabinet on March 11 approved amendments to the Sacco Societies Act (2008) to enhance the stability, efficiency and competitiveness of the country’s saccos.
The proposed reforms outlined in the Sacco Societies (Amendment) Bill 2023 currently before parliament aim to modernise financial and technological operations particularly benefitting the smaller organisations.
Key reforms include implementation of the Deposit Guarantee Fund to ensure better protection of sacco deposits, cut bailout risks and strengthen the co-operative sector.
The Sacco Societies Act, Section 55 provides for establishment of a Deposit Guarantee Fund to provide protection for members’ deposits, but not shares, up to an amount Ksh100, 000($775.19) in the event that an institution collapses as a result of liquidity challenges.
The fund which is an equivalent of the commercial banks’ deposit Insurance scheme operated by the Kenya Deposit Insurance Corporation (KDIC) will be run by a board of trustees comprising chairman and chief executive of SASRA.
The Principal Secretary to the National Treasury, Central bank governor, Commissioner of Co-operatives and four members nominated by saccos and appointed by the Treasury Cabinet Secretary will also sit on the board.
In February, the troubled Metropolitan National Sacco was declared ‘technically insolvent’ amid efforts to salvage millions of dollars in members’ savings.
David Obonyo, the Commissioner for Co-operatives said the once giant sacco requires about Sh7 billion ($54.26 million) to resume normal operations.
“Metropolitan sacco is technically insolvent and that is a fact. The little amount that we were able to spot and outrightly felt was mismanaged was about Sh7billion ($54.26 million). After the inquiry we surcharged the officials, but they have gone to court and now you know in court we are not in control of the court process,” he said.
Being technically insolvent means that Metropolitan cannot repay money owed and fulfil financial obligations such as bills and contractual monthly repayments as and when they fall due.
Mr Obonyo said that despite the insolvency, the State is unlikely to wind up Metropolitan because it would jeopardise the recovery of members’ funds and allow the suspects to escape the dragnet since the law provides that it is only the board of management of the Saccos that can sue or be sued on behalf of the institutions.
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