The new rules the government is implementing in a bid to tame rogue Saccos are expected to secure the funds for the millions of Kenyans who save through the non-deposit-taking Saccos.
The regulations could, however, result in the savers taking a cut on the dividends they take home every year as Saccos retain earnings to meet the new requirements.
The regulations require the non-deposit-taking Saccos to meet certain requirements that will enhance governance and in turn secure deposits.
The Sacco Societies Regulations of 2020 also require the cooperatives to increase their capital base, which could see the Saccos deny their members dividends and retain earnings to meet such requirements.
The regulations will bring Saccos with deposits of over Sh100 million under the oversight of Sacco Societies Regulatory Authority (Sasra). They have previously been regulated by the Commissioner of Cooperatives, whose requirements have been a little lax.
Sasra has as of last year been regulating operations of 175 deposit-taking Saccos. The new rules, which came into effect in January this year and gave players a six-month window to comply, place more demands on management of Saccos including minimum capital and liquidity requirements, and file regular reports with Sasra on the state of the Sacco.
“We believe bringing these non-deposit-taking Saccos under the regulatory oversight of Sasra will extend the benefits of regulated savings and loan services to more Kenyans while improving the stability and resilience of the sub-sector,” said John Munuve chairman, Sasra.
The non-deposit-taking Saccos are now expected to have structures in place that guide their operations. The Saccos, which are also referred to as Back Office Service Activity (Bosa), have had minimalist operations, at times owing to their size and scarce resources. Many continue to operate as fairly small entities but some have over time grown and hence the need to increase oversight on them.
They will now be required to maintain a core capital of at least Sh5 million. At the same time, the minimum capital should not be less than eight percent of its total assets. The core capital should also not be less than five percent of the total non-withdrawable deposits held by the Sacco.
Sasra may require a Sacco to have a higher minimum capital ratio based on certain factors such as a loss that may result in capital deficiency, a Sacco having a high volume of poor quality of assets, and rapid growth without adequate capitalization.
“If you are a member of a Sacco that is now regulated by Sasra, you can be sure your deposits are secure. Through the regular reporting and other requirements, Sasra is able to see if a Sacco is running in a healthy and prudent way, if it is not they will be able to raise an alarm and act,” said John Warui, the chief executive of Standard Group’s Network Sacco Limited. “Under the commissioner of cooperatives, they would in most instances move slowly such that by the time they are taking action, the Sacco in question would have collapsed.”
Members across many Saccos will have to take a cut in the dividends that they have been getting from their Saccos.
Warui explained that to meet such requirements as the minimum core capital requirements, Saccos would have to retain profits that Saccos previously paid out in dividends. He however added that in the coming years, with would translate to Saccos having more funds at the disposal of their members.
“Some of the benefits that will accrue to members might not be felt immediately but they will appreciate them in time. For instance, the requirement to have an adequate capital base will help in the future. The practice has been that a Sacco will distribute the surplus funds made in a year to members as dividends,” he said.
“This way, a Sacco could not grow its capital base. By putting in the minimum core capital requirements will mean that Saccos will with time have the financial muscle to increase loan repayment period for members and even offer mortgage products.”
“In three to five years, we will have enough muscle to support the gaps that have existed in the past. The rules are for posterity to enable Saccos to grow such that we might even compete with banks, for instance, when it comes to financing some of our members’ projects.”
Other requirements include the non-deposit-taking Saccos having to maintain a liquidity ratio of not less than ten percent of the non-withdrawable deposits and short-term liabilities in liquid assets.
Failure adheres to the required ratios might see Sacco penalized, including suspension of some of its operations including taking new non-withdrawable deposits, lending, and investing. Some of the penalties will be harsh for the members, as Sacco might be prohibited by Sasra from declaring dividends.
The regulations also require the Saccos to file quarterly and annual reports with Sasra. There are also areas of business that the non-deposit Saccos cannot undertake which include operating in the manner that the deposit-taking Saccos do, foreign trade operations, dealing in cryptocurrencies, and investing in venture capital.
Agriculture and Cooperatives CS Peter Munya says the new rules are aimed at protecting members’ funds, which is among the reasons Saccos will not be allowed to invest in what he termed risky ventures.
“The prudential legal framework provided in the Sacco Societies Act and the Regulations, 2020 are meant to ensure the savings and deposits collected from the public are not only protected but also secured at all times,” said Munya.