Bolster Sacco oversight to guard billions in savings
By Fred Aminga, March 17, 2025Savings and Credit Cooperative Societies (Saccos) are indispensable to Kenya’s economic development, serving as financial lifelines for millions of Kenyans and SMEs.
With over 14 million Kenyans relying on them for savings and affordable credit, their collapse would have far-reaching consequences, not only on families but traders and the economy.
Concerns have grown about the state of Saccos after revelations of financial mismanagement at the Kenya Union of Savings and Credit Cooperatives (KUSCCO), where Sh13.3 billion was lost, signalling an urgent need for stricter oversight and governance reforms in the Sacco sector.
The exposure at KUSCCO raises fundamental concerns about Sacco leadership accountability. Several questions remain unanswered. For example, did Sacco leaders seek members’ resolutions before investing heavily in KUSCCO?
By design, Saccos operate as cooperative institutions meant to prioritise member interests. Committing members’ savings without consultation undermines the very foundation of cooperative principles. That is why even any slim margin of lack of trust and transparency must become a non-negotiable pillar in Sacco operations, ensuring members are informed and actively involved in investment decisions.
A pressing concern is why members are taking the financial hit for managerial failures. The International Financial Reporting Standard (IFRS 9) requires organisations to make upfront provisions for expected financial losses, yet some Saccos staggered their provisions, delaying the recognition of losses.
Could this have misled members about their financial standing and masked the true impact of KUSSCO’s collapse? Notably, the Sacco Societies Regulatory Authority (Sasra) even defended the phased provisioning, arguing that an immediate full provision would destabilise the sector. However, this does not absolve some Sacco boards and management of responsibility for the financial misjudgments that led to the crisis.
Their failure to conduct due diligence and ensure member funds were safeguarded demands accountability. Surcharge measures should be imposed on those responsible for the losses to prevent a recurrence of such financial recklessness.
Another troubling issue is the revelation that some Saccos resorted to seeking bank loans to maintain liquidity and pay higher dividends. While dividend payouts are a critical incentive for members, using borrowed funds to cover obligations is unsustainable and indicative of poor financial planning. The government’s directive for Saccos to lower dividend payouts to preserve liquidity is a necessary corrective measure, but it must not absolve Sacco leaders of their failures.
As it stands, the financial mismanagement at KUSCCO is further compounded by an increasing threat from cybercriminals targeting Saccos. Unlike banks, many Saccos lack stronger firewalls against cyber attacks, making them vulnerable to fraud. The surge in cyberattacks on financial institutions underscores the need for Saccos to invest in stronger security systems to protect member funds.
Sacco’s pivotal role in economic development by providing affordable credit for businesses, homeownership, education, and agriculture can not be gainsaid. At a time when the economy is doing poorly, the collapse of Saccos would be disastrous, leading to widespread financial distress, increased poverty, and business stagnation.
The knock-on effects would extend to sectors such as transport, where matatu Saccos dominate, and housing, where cooperative-backed mortgage schemes are essential for home ownership. The banking industry also relies heavily on Sacco deposits to maintain liquidity. A weakened Sacco sector would disrupt the broader financial ecosystem, slowing down investment, reducing spending power, and increasing reliance on foreign lending.
The government must step in and dig deeper into the root causes of all the shenanigans in the sector so as to prevent economic turmoil. Much as the KUSCCO scandal is a wake-up call for the movement, this is the time for Sacco members to demand greater accountability, and those responsible for financial mismanagement surcharged to prevent a culture of impunity.
— The writer is People Daily’s Business Editor