Law changes to protect members of collapsed Saccos in Kenya

Friday August 06 2021
Kenya’s Co-operative movement

Kenya’s Co-operative movement has an asset base of more than Ksh1 trillion ($9.25 billion). PHOTO |FILE


Kenya’s Cabinet approved amendments to the Savings and Credit Cooperatives (Sacco) legislation, which seeks to implement a deposit protection scheme for members of collapsed Saccos and boost confidence in a sector bogged down by corruption and mismanagement.

The Sacco Societies Regulatory Authority (SASRA) said relevant amendments to the Sacco Societies Act (2008) have been approved by the Cabinet and are awaiting to be tabled in parliament.

“We are moving on well. The amendments to the Act have been approved by the Cabinet and we are waiting for parliamentary approval,” the authority’s acting Chief Executive Peter Njuguna told The EastAfrican last week.

The Sacco Societies Act, Section 55 provides for the establishment of a Deposit Guarantee fund for the Sacco sector to provide protection for members’ deposits, but not shares, up to an amount of Ksh100,000 ($926) in the event that an institution collapses as a result of governance and liquidity challenges.

The fund, which is an equivalent of the defunct Kenya Deposit Protection Fund (DPF) in the baking industry, shall be run by a board of trustees comprising the chairman and chief executive of SASRA, principal secretary to the National Treasury, Central Bank governor, Commissioner of Co-operatives and four members nominated by Sacco societies and appointed by the Treasury Cabinet secretary.

The board of trustees shall be chaired by a person elected from among its own members.


The Sacco Deposit Guarantee fund shall be financed through contributions from Saccos, investment income, borrowings, donations and grants.

However, there are questions about the viability of the depositors’ insurance scheme to instil confidence in the Co-operative sector, with policy makers raising a red flag over rampant corruption and mismanagement in the sector.

In 2019, the State Department for Co-operative Societies, Ethics and Anti-Corruption Commission (EACC) and the Ethics Commission for Co-operative Societies (ECCOs) signed a memorandum of understanding (MOU) to expeditiously deal with the rot within the Sacco sector promulgated through corruption, fraud and mismanagement.

EACC’s chief executive Twalib Mbarak, warned Saccos to run the institutions with integrity and professionalism, noting that the Commission had received 400 complaints from co-operatives, 16 of which fell under the Commission’s mandate.

The State Department for Co-operatives said the sector continued to face various challenges such as weak governance, poor management by boards/committees and corruption.

SASRA noted through its annual supervision report (2019) that for the third year running, the majority of complaints from Sacco members has continued to relate to delayed or failure to refund savings or deposits to Sacco members upon their withdrawal from the membership on the one hand, and delayed issuance of loans and other credit facilities which members may have applied for.

“In this regard, many deposit taking Saccos (DT-SACCOs) have been guilty of breaching the provisions of Regulations 22 (3), which provides inter alia that ‘a Sacco Society may refund the amount saved in non- withdrawable deposit account within 60 days after receiving a written notification from the member’, by failing to refund deposits of members within the stipulated 60 days,” according to the report.

“This, and the fact that the second highest number of complaints for the third year running relates to the Sacco Societies’ core mandate of provision of credit to members, largely undermines members’ trust and confidence in Saccos and calls for a holistic market conduct regulatory framework for Sacco Societies in Kenya.”

Kenya’s Co-operative movement commands membership of about 15 million people with an asset base of more than Ksh1 trillion ($9.25 billion), while providing employment to more than 500,000 people directly and another 1.5 million indirectly.

The Sacco Societies Act 2008 provides that every institution 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 ($92,590).