Saccos in Kenya are set to usher in a new dawn following several proposed changes in the regulatory framework governing cooperatives.
Dubbed The cooperative (amendment) bill, several proposals have been put forward that would see some significant changes in the Co-operative Societies Act (No,12 of 1997) and the Sacco Act (No.14 of 2008).
In December 2021, Agriculture, Livestock, Fisheries and Cooperatives, Cabinet Secretary (CS), Peter Munya promised to fast-track the passing of the Cooperative Bill 2021.
Speaking during a three-day sensitization meeting for cooperative leadership on the Bill in Maasai Mara, Narok county, the CS went on to explain that all the proposed amendments were driven by two primary goals i.e. bringing in good governance and providing a regulatory framework that will help nurture the sector.
Some of the key issues captured in the Bill include registrations of Cooperatives. For any cooperative to be registered at the moment, the process has to emanate from the respective County Government, that will ensure due diligence before recommending them for issuance of certificate by the Commissioner.
Notably, at the start of the year (2022), the national government revived plans to compel Savings and Credit Co-operative Societies (saccos) to share information with credit reference bureaus (CRBs).
The Bill aligns the Sacco Societies Act 2008 with the Banking Act and the Microfinance Act 2008, bringing credit information-sharing under a single regulatory framework.
Currently, saccos are obliged to share positive credit information among themselves, only being allowed to share data with CRBs under the third parties’ category.
The establishment of specialised cooperative courts to adjudicate on disputes in the sector under Clause 142. This is aimed at streamlining the dispute resolution process. Having a specialised court will greatly shorten the time that would have otherwise been spent waiting for hearings at the normal courts.
That each cooperative should have a nomination committee with members drawn from professional bodies, religious groups and government officials. The sole purpose of the committee would be to vet and clear potential candidates for the director or supervisory roles.
Notably, on the supervisory board, the bill proposes its members will be eligible to vie for board positions only after 3 year of vacating the supervisory board.
The Bill, under Clause 57, proposes positions for independent directors in the Sacco boards as a way of improving quality decision making especially on professional issues touching on the cooperative.
The Bill, under Clause 57 (4), proposes that the composition of the cooperative boards should adhere to the constitutional provisions on gender equity and inclusivity. This is geared towards pushing for more inclusivity based on gender.
The Bill, under Clause 56 (1) and (2), proposes the use of virtual and physical meetings under supervision of the regulator. This will greatly cut on some of the costs associated with physical meetings as members would now be able to attend some of these meetings virtually.
According to the Central Bank of Kenya, the National Government’s fiscal policy continues to focus on enhanced revenue mobilization, expenditure prioritization and reduction of the fiscal deficit.
As of January 2021, the SACCO Societies (Non-Deposit Taking Business) Regulations, 2020, came into effect - Non-deposit taking Saccos are those that require one to become a member by buying the Sacco’s shares and making monthly savings. Under such a Sacco, one cannot withdraw their savings unless they want to exit.
These regulations were enacted to root out any rogue Saccos and ensure the security of savings for the millions of Kenyans who are members.
Lobbyists argued that the regulations were geared towards minimizing the chances of Saccos defrauding its members.
However, the new regulations affect how non-deposit-taking Saccos run and operate, thereby potentially leading to scenarios in which savers earn less in dividends as the Saccos try to comply with the new regulations.
Experts estimate that this could continue for another 5 to 10 years, until the Saccos have stabilized enough to resume dividend payments.
Saccos typically distribute income to its members in the form of dividends. However, many Non-DT Saccos may now be required to hold profits in order to fulfill minimal core capital requirements, resulting in decreased or no dividends for members.
Non-deposit-taking saccos will now be required to maintain a core capital of at least Ksh5 million following the introduction of the new legislation.
However, in the long run, the new laws are projected to help savers significantly. For example, as Saccos attempt to reach the minimal core capital requirements, their financial muscle will grow, allowing them to provide more capital-intensive products like loans with longer repayment periods to their members.
Saccos in Kenya have contributed greatly towards the socio-economic development of members across the country. From teachers, to farmers, to friends with common interest, this saving and investment tool has been lauded by Kenyans as a major savings booster.
According to Vision 2030, Saccos are tagged as vital players when it comes to mobilizing finances as well as tools to further the goal of financial inclusion across the country.
Data availed by Saccos regulator – The Saccos Societies Regulatory Authority (Sasra), shows that assets of both deposit-taking and non-withdrawable-taking Saccos accounted for 7.25 percent of GDP as at December 31, 2020.
This paints a clear picture of the importance of the over 22,000 Saccos in the country, with the millions of members set to be impacted by some proposed changes.
Kenya’s Saccos have an asset base of over Ksh1 trillion, at least 15 million members and have employed over 2 million citizens both directly and indirectly.
This explains why The Kenya Cyber Security Report 2020 by Serianu (a cyber security consulting firm) has millions of Kenyans worried about the safety of their savings.
According to the report, mismanagement of information obtained from staff, members and customers, insufficient technology, low security levels and a surge in mobile attacks on mobile transactions in the Saccos are just some of the major challenges.
The survey brought to light major points of vulnerability when it comes to the Information Systems installed by Saccos. Out of 111 cooperatives sampled during the survey, only half had set up data recovery plans.
In addition, Saccos are reportedly losing an equivalent of Ksh6 million each month through software vendors. If you expound this to the 22,000 registered Saccos, it translates to Ksh132 billion.
“Our research indicates that Saccos are increasingly investing more resources in technology and security, but most of them are still unprepared for the Data Protection Law,” Serianu Chief Operations Officer, Joseph Mathenge stated.
The report further revealed that some Saccos opt to outsource their cybersecurity tasks to firms that haven’t been vetted thereby exposing their client’s savings and personal information to attacks.
“Up to 42% of the Saccos have no monitoring and alerting activities in place, and 16% only track their vendor’s activities on their networks when a problem occurs,” the report reads in part.
Saccos in Kenya run the risk of incurring a penalty of Ksh5 million each for failing to comply with the Data Protection Act, and safely manage the information they obtain from members.
Saccos are popular in Kenya due to the low interest rates they charge on loans to their members compared to other financial institutions, with some cooperatives allowing its members to borrow as much as 4 or 5 times their savings.
As a result, more Kenyans are embracing Saccos as an alternative source of funding for personal projects, as well as dividends.
At the end of 2021, Stima Sacco (open to all Kenyans) was ranked as the best dividend paying Sacco, with its board of directors recommending a dividend of 14 percent per share.