Kenya's Rogue SACCOs: You will only remain a darling until the day you want to leave

Erick Odhiambo Adega, a teacher at Ulumbi primary school in Siaya county during an interview. Taraji SACCO decided to refund him in yearly installments of Sh5,000, a spread that would take him over 32 years before he was fully refunded, instead of the three months stipulated by law. (PHOTO: COLLINS ODUOR/ STANDARD)

Philip Maina Thuo knew the importance of saving a little for a rainy day. Mr Thuo walked into Faidi Development Sacco located on Nairobi’s Ronald Ngala Street and opened an account.

Thuo says he opened the account in the Savings and Credit Co-operative (Sacco), which is located at Gatkim Complex in the heart of one of the city’s busiest streets in March 2014.

He started making his deposits in the Sacco. On a good visit, he would deposit Sh16,000 and when he was not so monied, he would deposit as little as Sh1,000. In about six months, Mr Thuo had accumulated over Sh200,000 in the Sacco.

“I saved Sh201,000 from March to October 2014. The same year, I had some urgent matters that required money. I requested the Sacco to refund my savings,” he says. The Sacco appeared so supportive to his request and asked him to place a withdrawal request in writing. He wrote the letter in October 2014. The Sacco acknowledged receipt of the letter and informed him that indeed he was entitled to a refund of Sh201,000.

That was the end of the good part of his story with the Sacco. What followed has been a painful two-year wait for the Sacco to refund his hard earned cash. The Sacco chose to exploit the loophole in the existing bylaws that state that he could only be refunded when funds are available.

Thuo approached a lawyer to help him out, but he got the same response. “The Sacco admits the receipt of the withdrawal letter and pursuant to the Sacco bylaws, a refund of Sh200,000 was due. However, the same bylaws also provided for refund of the money as and when funds are available,” Mr Peter Maingi, the chairman of the Sacco wrote to Mr Thuo’s lawyer.

And to punish Thuo further, the Sacco said despite remaining with his money, he will earn no dividend or interest on deposits since he had withdrawn from it. “Note that the Sacco does not pay interest on deposits and thus is not available for your client furthermore, no dividend was declared thus the same has not accrued to your client,” Maingi wrote.

Like Thuo, Ms Beatrice Awuor has also been on this path, but with a different Sacco. After writing her letter of withdrawal from Kimute Sacco in Kisumu, suddenly the warm Sacco officials turned cold and too busy. “I stopped my share contribution and stopped to be a member. According to the law, I was expecting my refund within three months,” Ms Awuor explains.

Three months

Since she had a loan with the Sacco, she suggested that her shares be used to settle the loan and the difference refunded, but the Sacco would hear none of it. “They refused to take the loan balance from my shares, and I organised and paid them in 2014 using a cheque. To date, it has been cumbersome looking for the shares,” Ms Awuor said. By the time she withdrew from the Sacco, she had Sh105,000 in shares. “I saved so that I could be able to pay school fees and develop but all was in vain,” she said.

On his part, Eric Odhiambo Adega, a primary school teacher diligently contributed Sh1,500 from his pay each month to Taraji Sacco Limited. Mr Odhiambo had contributed a total of Sh166,400 after nine years when he decided to exit the Sacco.

That is when his trouble with Taraji Sacco (formerly Siaya Teachers Sacco) started. For four years, the Sacco has tormented him. Like a jilted lover, Taraji Sacco decided to make his exit as painful as possible and in the process, broke all the laws governing savings and credit societies.

Taraji decided to refund him in yearly installments of Sh5,000, a spread that would take him over 32 years before he was fully refunded, instead of the three months stipulated by law. Mr Odhiambo filed his complaint with The Standard, through The Nairobian Defender, which was also copied to the Sacco regulator – the Sacco Societies Regulatory Authority (SASRA).

The regulator intervened and he has been refunded some portion of his savings, but at an irregular pace that reduces him to being a ‘beggar’ of his own funds. When he visited the Sacco, its Chief Executive, Elezier Okungu explained to him that some members had pulled out and that is why the Sacco was having cash-flow challenges. To date, an impatient Odhiambo is still waiting for the remainder of his money.

These cases continue to pile on the table of the sector regulator day after day but few get resolved given that the sector has a multiplicity of regulators and some institutions can easily get away with it.

The case is no different for Daniel Mulwa Nzuki. “I was a member of Chuma Motto Sacco, being an employee of Steel Makers Company Limited, and I terminated my membership a year ago after being deducted a total of Sh78,000 by the sacco. I was to receive my savings after three months of termination, which was on December 31, 2014,” Nzuki wrote. “I have claimed the refund of my shares without success. So far, I have never received even a shilling from the Sacco.”

Also, Mr Daniel Alliangana, who was a member of the Moi University Savings Cooperative Society (MUSCO) decided to escalate his matter to SASRA, but his case still remains unresolved. “I resigned from Moi University Savings Cooperative Society early November 2014 having saved over Sh1.8 million and have no loan with them. My letter was never acknowledged. I wrote a reminder in October 2015 copied to SASRA. To date, I have yet to receive acknowledgement from either,” he wrote in an email to Business Beat.

Cracked the whip

“According to regulations governing SACCOs, a member should be paid his/her shares within three months after withdrawing membership. It appears MUSCO officials are breaking the law with impunity,” he added.

He said that he was not the only former member who was yet to be paid. “There are very many former members who resigned as far back as 2011 and are yet to be refunded millions of their savings. SASRA the supervisory Authority is in slumber land,” he added. But it is regulating the sector that continues to be a headache.

SASRA says its mandate is only limited to regulate, licence and supervise deposit taking Sacco Societies which are popularly known as Front Office Service Activity or FOSA. These services enable Saccos to operate in nearly the same way as banks.

SASRA CEO John Mwaka attributes some of the challenges in the industry to financial indiscipline. “There is a lot of impunity and disregard of the law and this is why some Saccos break their own bylaws. We have tried to deal with this among those that are regulated by us. At times some go to borrow at 22 per cent from banks and lend at 18 per cent. This would explain their liquidity problems especially when members decide to leave,” Mr Mwaka told Business Beat in a phone interview.

He, however, explains that Saccos operate within some bylaws and some allow them to stay with the member’s money long after the required 90 days. “They will be covered if their bylaws allow it. But I don’t see any reason why a Sacco would not be able to pay within a week. We do not encourage the delays among those that we regulate because that would indicate liquidity problems. Some bylaws vary between 30 to 90 days,” he said.

Mwaka said consumers have channels for recourse, where they can file complaints to be helped instead of suffering in silence. He said if the Saccos are those under its watch, consumers can put in official complaints.

“There are options through the management boards and the supervisory committees that such cases can be dealt with,” he added. But most of the Saccos operating in the country do not fall under this category. When the regulators act, it is sometimes too late.

The most recent public action by SASRA was in September last year when it cracked the whip on five Saccos it accused of taking deposits despite not being licensed to do so. The Saccos that came under fire were Good Life Sacco Society Ltd, which was also operating as Fedha Micro-Finance Investment Ltd, Prevailing Sacco Society Ltd, New Milimani Sacco Society Ltd, Millionaire Sacco Kenya and Urithi Premier Sacco or Urithi Housing Cooperative Society Ltd.

Information sharing

Urithi has been one of the most active Saccos in the land and construction sectors with multi-billion shilling projects selling plots and completed houses. But the action only stopped at warning the public against dealing with the institutions. SASRA warns that anyone who deals with unlicensed institutions will be doing so at their own peril. “Members of the public are further warned and put on notice that any person who undertakes deposit-taking Sacco business or transacts such deposit-taking business with an unlicensed person, institution or entity, shall be doing so at his/her own risk and peril,” the authority says in a notice on its website.

Currently it has licensed about 164 Saccos to operate front office services and about a dozen are waiting for licences. The rest of the Saccos are registered and regulated by the Department of Registration of Co-operatives which is under the ministry of Industry, Trade and Cooperatives.

“The commissioner of cooperatives also has powers to deal with Saccos that flout their own by-laws,” Mr Mwaka added.

In his budget statement, Treasury Cabinet Secretary Henry Rotich also moved to reign in rogue Saccos even as he extended support to those that were being run properly. Rotich proposed additional amendments to the Sacco Societies Act to facilitate cross border information sharing.

He also noted that with the increasing numbers of Saccos invariably using the name “SACCO” or “SACCO Society”, it has become difficult to know the differences between a Cooperative Society, a SACCO Society, a deposit taking SACCO Society (DTS) and a non-depositing taking SACCO Society (non-DTS). The emergence and the growth of “Matatu or PSV SACCOs” have further fuelled the confusion.

“Therefore, I propose to amend the SACCO Society Act to provide that only SACCOs that are licensed for deposit taking can use the acronyms deposit taking SACCO Society (DTS) or DT-SACCO to differentiate them from the other SACCOs and also to provide legal restrictions for the usage of these acronyms by other non-deposit taking SACCOs,” he said.

This is hoped to help reduce cases where consumers have been duped to deposit millions of shillings with the Saccos only to later realize that they were not authorised to take deposits.