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Central Bank of Kenya warns public over the return of pyramid schemes

By Patrick Alushula | April 8th 2017
Bishop David Kariuki Ngari who owns Ekeza Sacco and Gakuyo Real estate firm

Central Bank of Kenya (CBK) has sounded the alarm over the rising number of pyramid schemes and unlicensed financial institutions that are stealing money from the public.

The regulator has cautioned the public to keep off unlicensed and unregulated financial institutions so that they don’t lose money.

In a joint statement with Sacco Societies Regulatory Authority (Sasra) yesterday, CBK said unlicensed deposit-taking entities and pyramid schemes have made a big comeback.

“Such entities entice members of the public to place money with them and promise quick and abnormally high returns on their money or acquisition of non-existent properties,” read the joint statement in part.

The two bodies called on the public to give deposits to only those institutions that are licensed, noting that  these institutions are listed in the CBK and Sasra websites. By January 27, 2017 Sasra had licensed 164 Saccos to take deposits from the public.

Their joint statement comes at a time when Kenyans have lost money to the Simple Homes Kenya company that wooed its victims by asking them to “pay rent and own a home.” It later emerged that these homes were non-existent.

Just this week, it also emerged that 7,000 Kenyans could lose money in another housing scam drawn up by Ekeza Sacco and Gakuyo real estate firm owned by Bishop David Ngari.

The country has had its fair share of ponzi schemes.  In the  biggest one in 2006, about 6,000 people lost close to Sh8 billion.

Many more cases have emerged ever since.  Perpetrators of such schemes have been capitalising on the loose regulations for non-deposit taking Saccos.

While CBK licenses commercial banks and micro-finance banks under Banking Act and Microfinance Act respectively, Sasra licenses deposit-taking Saccos using the Sacco Societies Act.

The deposit-taking Saccos undertake both withdrawable and non-withdrawable deposits. The non-withdrawable deposits are  used as collateral and therefore are only refundable when a member is quitting the Sacco. The withdrawable deposits can be accessed by members at any time as demand deposits.

However, there are other cooperative societies registered under Commissioner for Cooperative Development. These only mobilse savings and offer credit against these savings as collateral.

CBK says that such institutions are not authorised to take withdrawable deposits.

The statement comes just a day after the Cabinet approved the state-sponsored Financial Services Authority (FSA) Bill 2016 which see four financial regulatory bodies merged to increase supervision in the financial sector.

If the FSA Bill is passed into law, the  Capital Markets Authority (CMA), the Insurance Regulatory Authority (IRA), the Retirement Benefits Authority (RBA) and Sasra will be collapsed into one body.

The rationale for the merger is to provide a better organised regulatory framework to the increasingly integrated and converged financial services.

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