By Kenneth Kwama

The co-operative movement is bracing for tough times following the implementation of new laws that require savings and credit societies (Saccos) to meet stringent requirements.

There are fears that the requirements could disrupt operations of several co-operative societies and by extension destabilise the economy. Co-operatives contribute 45 per cent of the country’s Gross Domestic Product and more than 31 per cent of the total national savings.

The new regulations, which technically came into force late last year require that all deposit taking Saccos have an accumulated core share capital of not less than Sh10 million before applying for a licence to be considered to operate.

The new law also requires that every registered society and new applicants must pay an annual fee of Sh50,000 and Sh20,000 for every branch that offers Front Office Savings Accounts (Fosa) services — if the society operates or is planning to offer such services in any part of the country.

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According to the new regulations, every Fosa branch must be registered and licensed independently. Each of these branches is supposed to pay charges annually to the regulator.

Growing fears

The new regulatory regime is partly meant to check the proliferation of privately operated and un-registered pyramid schemes that have assumed the identity of deposit-taking Saccos.

Kajiado North District Co-operative Development committee leads members from 33 Saccos in a procession from the district headquarters to Ngong Women Hall compound in Ngong Town for the Ushirika Day celebration on Saturday. [PHOTO: ANDREW KILONZI/STANDARD]

But leading operators in the movement have expressed fears about the regulations saying they may adversely affect the sub-sector and force many members to migrate to banks or other financial institutions, which have already started to jostle for customers in anticipation that the new regulations could create discontent within the movement.

Some banks have started offering specially designed products like loans that are aimed at Sacco members.

Afya Sacco Chairman Vitalis Lukiri says although the leadership of the movement is not opposed to regulations that enforce good governance considering the volume of cash and assets involved, certain sections of the regulations were punitive.

"We welcome the regulations, however, monetary implications involved are crippling as they will seriously erode our members dividends. The administrative requirements are also too complex and bureaucratic," says

But as the debate continues, there are indications that the effects of the stringent capital requirements are already beginning to show.

Single licence

Savings and Credit Societies Regulatory Authority (SASRA) Chief Executive, Carilus Ademba says that out of the more than 227 Sacco societies operating Fosas, 12 failed to apply for licences to operate by the time the application deadline expired on June 17.

Previously, the societies were only required to apply for a single licence from the ministry of Co-operatives Development, which would sustain them on the market for their entire lifetime. This is why most find the new annual licensing requirements punitive.

Most Saccos are worried that the high monetary demands to be enforced by the regulatory authority may reduce or totally wipe out members’ dividends and eliminate one of the major incentives that has kept members from withdrawing their savings.

Harambee Sacco Chairman Macloud Malonza says the situation is worsened by the fact that the new regulations also empower the authority to deny Saccos the ability to pay dividends if the authority deems any of the Saccos to have contravened laid down regulations.

Prohibitive capital

Malonza argues that the Sh10 million minimum core deposit capital required before any Sacco is considered for licensing is too high because most deposit taking societies mostly serve low-income earners who may not have sufficient income to raise the required amount for registration.

Payment of dividends to Sacco members has been a key motivator of savings in the sub-sector and a reduction of the pay-out or its total elimination could trigger panic withdrawals. The beneficiary in case of such a scenario will be the commercial banks.

Apart from the Sh10 million minimum core share capital requirement, they must also maintain a core capital of not less than eight per cent of the total deposits.

In the new regulatory regime, Saccos are also required to pay a licence fee of Sh30,000. This amount is not refundable and doesn’t depend on whether the application is approved or not.

These are only a tip of a wide range of other stringent requirements Saccos are supposed to fulfil not only during application, but also to keep afloat on the market and failure to adhere also exposes them to a wide range of stringent penalties.
The implementation of the Sacco Regulations 2010 follows the recent establishment of SASRA. The new regulatory body is supposed to oversee the implementation of the new laws governing the societies and safeguard funds and assets of the more than nine million members of the movement.

According to a report from the ministry of Co-operatives Development on the just concluded fiscal year, the Sacco movement has accumulated savings estimated to be more than Sh180 billion while its asset base stands at Sh200 billion.

The report says the accumulated savings and assets from the public sector, especially government ministries are holding most of the funds followed by the private sector.

Co-operatives Development PS Seno Nyakenyanya says that some of the best performing Saccos in the country are initiatives established by civil servants. Most of these Saccos has each accumulated savings and assets valued in excess of Sh5 billion with the average annual growth rates estimated at between 10 to 25 per cent.

"It is gratifying to note that the Sacco sector is globally recognised and is grouped amongst the top ten globally amongst the most successful savings and credit societies. The country is also well represented at the World Council of Cooperative Unions by the Kenya Union of Savings and Credit Cooperatives," says Nyakenyanya.

Although the co-operative movement has been hailed as a good example in many global meetings, some players in the industry fear that the new laws and the sweeping powers that they have vested in SASRA could destabilise growth.

The new regulations grant Sasra ability to nullify the operations of any society that may flout the regulations, suspend or exact penalties of not less than Sh100,000 to saboteurs.

Apart from the complex annual licensing processes, the laws require Saccos to submit monthly reports to Sasra about their activities and performance. Failure to do this could subject them to penalties.

Apart from the monthly reports, other fillings will be submitted quarterly and at the end of every financial year.