Sacco leaders holding back new rules

By Macharia Kamau

Inadequate capacity within the management of co-operatives is to blame for the failure by Savings and Credit Co-operatives (Saccos) to meet new regulatory requirements.

A new law that came into force last year requires all Saccos operating Front Office Services Activity (Fosa) to seek new licences from the Sacco Societies Regulatory Authority (Sasra).

But less than 25 per cent of Saccos that have been operating Fosas have been licensed, which Sasra said was a pointer to the kind of people managing Saccos.

“Sasra has noted that inadequate technical skills, both at board and management levels remain the key challenge to the successful implementation of the new regulatory framework,” said Carilus Ademba, the Sasra chief executive.

Sustainable solution

“While the authority is addressing this in the short-term through training and technical materials, a sustainable solution will require holistic approach involving Sacco sub-sector stakeholders.”

The regulator said out of 219 that had Fosa operations, only 45 have so far met requirements set by the Saccos Act, and received licences to run Fosa.

Seven Saccos failed to apply for licences to continue operating as deposit taking Saccos. Sasra said it has issued directive to them to quit taking deposits from members.

“The seven who did not apply have been directed to cease Fosa operations as their continued operation is a breach of the Sacco societies Act,” Mr Ademba said.

The Sacco Aocieties Act, which was gazetted a year ago, was meant to streamline the co-operative movement through the establishment of prudent regulation of deposit taking Sacco societies.

Financial access

“This is consistent with the ongoing reforms in the financial sector, whose ultimate aim is to expand financial access, encourage efficiency, and enhance financial stability of financial service providers in Kenya,” said Ademba.

 The Act requires Saccos with Fosa operations to have the minimum financial, systems and operational policies to enhance prudent management of the deposit taking business, and thereby protect the member funds.

A Sacco must maintain a minimum capital of Sh10 million, and a capital adequacy of 10 per cent of its liabilities to run a Fosa.

“Capital adequacy requirements generally aim to increase the stability of a Sacco by decreasing the likelihood of failure. This move is also seen to promote public confidence in the institution,” said Ademba.

 He added  licensing prevents  recurrence of case where unscrupulous individuals started pyramid schemes as Fosas.