KUSCCO fiasco exposes regulator’s ineptitude

By , March 17, 2025

The giant Kenya Union of Savings and Credit Co-operatives (KUSCCO) is on the verge of collapse due to massive fraud and outright theft. A forensic audit by the Ministry of Co-operatives and MSME Development uncovered massive irregularities that led to losses estimated at Sh13 billion.

The reverberations of this fallout will be felt for a long time to come in Kenya’s financial sector, and specifically in the Sacco sector where the umbrella body had great influence. Major Saccos are taking a big hit after the government ordered them to provision for the losses they have taken from lost deposits in KUSCCO.

At least 247 Saccos were ordered to cut dividends and write off or offset funds to cover these losses.

The KUSCCO saga has exposed the Sacco Societies Regulatory Authority (SASRA) as completely out of its league in regulating these giant Saccos. This is especially so after massive scandals due to financial mismanagement and poor governance in two other major Saccos back to back.

A forensic audit in 2024 revealed massive irregularities and fraud in Metropolitan Sacco, leading to the loss of a staggering Sh15 billion of members’ deposits. This was despite the fact that alarm bells in Metropolitan began going off several years ago, but SASRA either did not hear them or decided they were not loud enough. Metropolitan has now been declared insolvent. Shockingly, the audit report says that fraud took place in a short space of two years, between 2021 and 2023.

Another disastrous decision was that by Mwalimu Sacco to buy out what was a dead man walking, when it purchased a 75 percent stake in Equatorial Bank, then owned by the late Naushad Merali, for Sh2.2 billion. They renamed it Spire Bank.

Ten years later, Mwalimu Sacco had sunk in Sh10 billion of members’ funds, in a desperate attempt to keep the rapidly sinking ship that was Spire Bank afloat. They were only rescued from this disastrous investment when the Central Bank of Kenya (CBK) approved a proposal by Equity Bank to acquire the assets and liabilities of the bank. In a further hit, Mwalimu had to pay Equity Bank Sh500 million to cover the liabilities that were over and above the assets.

In all these cases, nobody has been brought to account. There have been no charges preferred against anybody.

In all these cases, SASRA has stood watching from the sidelines, a complete spectator!

SASRA was established by the government to regulate, supervise and develop the Sacco sector through ensuring prudent practices to promote members’ interests, enhance access to financial services, and foster financial stability.

But as chaos reigns in the Sacco sector, SASRA is nowhere – unseen, unheard, unfelt.

The Sacco sector has grown too vibrant, too big, too fast, leaving regulatory authorities completely flatfooted. It is clear that SASRA lacks the requisite capacity and legislative muscle to police this sector.

It is also clear that committees running Saccos have too much power, too much leeway to do what they want, and they give scant respect to obviously weak governance structures.

What is needed urgently is a regulatory body that is modelled along the lines of the CBK. It should mirror CBK in all aspects for it to be effective. It must be given the resources it needs to build the capacity to do the job in terms of structures and personnel. Saccos have become financial behemoths, holding billions of shillings in workers’ savings. The government cannot allow these savings to continue being at risk.

Way forward – overhaul SASRA, undertake an audit of all Saccos for financial and governance compliance, and tighten the law to strengthen corporate governance in Saccos.

But, of course, the government can choose to continue business as usual. It better be warned, the next KUSCCO is just around the corner, waiting to unravel at any time.

— gathukara@gmail.com

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