Weak controls leave many Saccos bleeding

Some of Kenya’s savings and credit cooperative societies have higher risk of collapse, a new report warns. A new study by Financial Sector Deepening (FSD) indicates that despite the creation of a dedicated industry regulator and laws to professionalise the sector, Kenya’s Sacco industry remains as weak as it was 12 years ago.

The competition to increase clients and boost savings has seen many Saccos turn to existing or new members in an attempt to raise capital putting a strain on liquidity. “Whilst increasing Sacco assets ‘on paper’, this strategy has rapidly increased the demand for borrowing and led to a slackening of loan conditions and applicant vetting,” explained a report by financial think tank Financial Sector Deepening (FSD).

“The net result is a Sacco sector less liquid and even more at risk than it was prior to regulation,” explained the report in part. Saccos have become major players in the country’s financial sector boasting a combined Sh450 billion in assets and lending to millions of formal and informal sector employees unable or unwilling to obtain the same facilities from commercial banks.

Several Saccos including Mwalimu, Stima, Harambee and Kenya Police Saccos have grown their balance sheets to rival those of some commercial banks, prompting calls for a more stringent regulation regime for the sector.

In 2015, the giant Mwalimu Sacco announced it had paid Sh1.6 billion for a 75 per cent controlling stake in troubled Equatorial Commercial Bank (ECB) with the transaction becoming the subject of a regulatory inquiry.

FSD now states that the country’s Sacco Societies Regulatory Authority (Sasra), does not have adequate capacity to regulate the sector making it difficult to monitor compliance or enforce regulations against non-compliance.

“Sasra continues to assess licence applications and to publish names of non-compliant Saccos. Less clear, however, is Sasra’s capacity to actively monitor the continued compliance of licensed Saccos or the activities of those still in transition,” explains the report in part.

Industry regulator Sasra has however defended the sector stating that deposit-taking Saccos that constitute a majority of the sector’s assets are in compliance with regulatory requirements. “I believe we have adequate capacity,” said Sasra’s acting CEO Mr John Mwaka.

“Sasra is only six years old and when we started there were 230 Saccos offering front office savings account (Fosa) and we went through the process of vetting them and cut them down to the current 176,” explained Mwaka. “Non-performing loans have also gone down from the 10 per cent of gross loans we used to have and have now stabilised at 4.7 per cent pointing to the improved health of our Saccos,” he explained.

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