Oparanya warns Saccos taking loans to pay dividends

Top savings and credit co-operative organisations (Saccos) leaders have been borrowing heavily from banks to pay huge dividends to their members following low annual profits, Cooperative and MSMEs Cabinet Secretary Wycliffe Oparanya has claimed.

He said a good number of Saccos are grappling with liquidity challenges as they cannot be able to service loans, a situation contributing to poor governance.

“Investigations by the government have confirmed some financial co-operatives leaders have resorted to unethical business practices, like borrowing to pay dividends and not basing the same on annual profits earned,” Oparanya stated.

This behaviour, the CS added, has plunged the credit unions into unmanaged debts and thus having challenges with the regulators, adding this is diluting good governance principles and professional conducts of the managers. Oparanya made the remarks at a Nairobi hotel during the National Ushirika Adjudication Award ceremony to co-operatives.

The co-operatives would have been honoured last July but the exercise stopped following the countrywide protests that prevailed.

“Dividends are declared based on profits and not borrowed money. You have already made a loss so why then borrow to appease your shareholders. This is unethical and will not be tolerated,” Oparanya stated.

Annual dividends are paid from the profits earned or retained earnings. Liquid Saccos enjoy significant retained earnings out of which in some cases pay dividends from retained earnings.

Oparanya confirmed that the same problem is being escalated in the coffee sub-sector where co-operative leaders of the primary societies are equally resorting to heavy borrowing to pay farmer’s high earnings compared to earned income.