Businesses & Financial News

Proposed law changes to put Saccos ‘In Check’

By Steve Umidha

Kenya’s Parliament is set to begin a debate on the new amendments to the Savings and Credit Cooperatives (Sacco) legislation, which seeks to among other factors boost confidence in a sector synonymous with corruption and mismanagement.

Amendments to the Sacco Societies Act (2008) was approved by the Cabinet in August this year and officially tabled on the floor on November 29, awaiting debate.

The Bill’s key object is to amend the Sacco Societies Act of 2008 by sanctioning the usage of innovative systems and ICT in collecting and receiving of statutory reports by Kenyan Saccos – a decision felt will help lessen wastage of member deposits in certain Saccos.

The proposed changes also seek to implement a deposit protection scheme for members of collapsed Saccos.

“This is aimed at reducing the regulatory reporting burden on SACCOs and ensuring of a faster, efficient and accurate reporting, monitoring and analysis of SACCOs financial status at any time, being the cornerstone of Risk-Based Supervision (RBS),” reads in part the gazette notice.

The Bill, to be known as the Sacco Societies (Amendment) Bill, 2021 will also seek “to realign the definition and roles of Minister to Cabinet Secretary and also the responsibility and office of the Controller of Budget as reflected in the Act, to be in line with the Constitution,” continues the statement.

This comes even as the country’s Saccos are on course with the implementation of an inter-Sacco lending market and eventual integration into the National Payments and Clearing system.

Through, Sacco Societies Regulatory Authority (SASRA) – the regulator will continue to work with a multi-agency team comprising the State Department of Co-operatives, the National Treasury, Central Bank of Kenya (CBK) and the Kenya Law Reform Commission (KLRC), and has since drafted the legal framework for the operationalization of the Central Liquidity Fund (CLF) where Saccos can lend and borrow money from each other thereby cutting ties with Commercial banks whose loans are considered very costly.

Under the new regime, Saccos will run their own inter-Sacco market where they can lend and borrow from each other at reasonable interest rates to offset their financial positions which was not possible in the past.

The draft legal framework is currently under review by the office of the Cabinet Secretary in charge of Agriculture, Livestock, Fisheries, and Co-operatives. Majority of local Saccos have shown interest in the initiative and are working with Sasra.

“This will offer us the opportunity to lend to other small Saccos at interest,” said David Mategwa – the Chairman of Kenya National Police DT Sacco yesterday in a telephone interview in response to the proposed changes.

The move will also see Saccos drift away from external borrowing as a funding source for their assets largely due to the expensive loans and stringent conditions made by commercial banks.

In 2019, the Saccos’ cost of external borrowing stood at Sh2.33 billion, according to the authority’s annual supervision report (2019).

In 2019 President Uhuru Kenyatta issued a policy directive towards the establishment of a Central Liquidity Fund (CLF) for Saccos, with the ultimate objective of   integrating deposit taking (DT) Saccos into the National Payment System.

Estimates show that Kenya’s Co-operative movement commands membership of about 15 million people with an asset base valued at more than Sh1 trillion, with the sector employing in excess of  500,000 people directly and another 1.5 million indirectly.

 

 

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