Here Is Why Your Sacco Dividends Will Reduce Soon

By Soko Directory Team / Published September 1, 2021 | 8:00 am

KEY POINTS

Saccos are likely to retain earnings and deny members Dividends to meet the new Sacco Regulations that require Saccos to increase capital base and maintain core capital of 5 million shillings.

The Sacco Societies Regulations of 2020 require all registered SACCOS under SASRA to increase their capital base and grow their core capital, which could see the Saccos deny their members dividends and retain earnings to meet such requirements.

The majority of people save and invest with Saccos to earn dividends on shares annually and interest on savings.

However, Saccos are likely to retain earnings and deny members Dividends to meet the new Sacco Regulations that require Saccos to increase capital base and maintain core capital of 5 million shillings.

The minimum institutional Capital should be above 8 percent of the total assets. The core capital should be above 5 percent of non-withdrawable deposits held by the SACCO.

The Sacco Societies Regulatory Authority (SASRA) had issued a directive to SACCO Societies undertaking specified Non-deposit-taking (BOSA) Business in Kenya.

On May 5^th, 2020, the Cs Agriculture, Livestock, Fisheries, and Cooperatives published the Sacco society regulations 2020 which prescribes the prudential and market measures to be complied by all Sacco societies undertaking specified non-deposit taking business. (BOSA)

The new regulations 2020 came into effect on 1^st January 2021 and all Saccos undertaking specified Non-Deposit Taking Business (BOSA) were given 6 months to comply.

The deadline for application of authorization and compliance was 30^th June 2021. SASRA issued a public notice warning that those SACCOs which will not have complied with the regulations will not be allowed to continue undertaking non-deposit-taking transactions and that it would be a criminal offense punishable by criminal prosecution if a Sacco continued to operate without valid authorization.

Members of the public and public entities were also warned on undertaking non-deposit-taking transactions with unauthorized SACCO Societies since they would be illegal and unenforceable. You will be doing so at your own risk or peril. It is important to research whether a SACCO is registered or authorized by SACCO to undertake Non-Deposit Taking Transactions before you start saving and investing with a SACCO.

Saccos issue the surplus income to members as dividends. However, with the implementation of the new regulations, several SACCOs will opt to retain the surplus income and plow back to meet the new regulations.

Members across many Saccos will have to take a pay cut in dividends they have been earning. In the long term, Saccos will have more disposable income to distribute to members in form of dividends.

“We believe bringing these non-deposit-taking Saccos under the regulatory oversight of SASRA will extend the benefits of regulated savings and loan services to more Kenyans while improving the stability and resilience of the sub-sector,” John Munuve chairman, SASRA.

In the past Kenyans have lost their hard-earned money through Saccos like Uriithi and Ekeza that collapsed due to loopholes in Sacco regulations. Sacco Regulations of 2020 are fixing these loopholes and will enable SACCO societies to grow and compete with other financial institutions like banks. The new rules will ensure oversight and good governance to safeguard investors’ funds.

Members of Saccos should be assured that their monthly deposits are secure with the new regulations already in place. All registered Saccos under SASRA will be reporting to the regulator on a quarterly basis and this will make it easier to oversight the operations of Saccos and act when there are malpractices.

Agriculture and Cooperatives CS Peter Munya said the new regulations will protect members’ funds and Saccos will not be allowed to invest in what he termed as risky ventures.

“The prudential legal framework provided in the Sacco Societies Act and the Regulations, 2020 are meant to ensure the savings and deposits collected from the public are not only protected but also secured at all times,” said CS Peter Munya.

In the short term, members saving and investing with Saccos will feel the pinch on the reduction of their dividends as Saccos aim to meet requirements and avoid penalties from the regulator. Members of Sacco will not feel the benefits immediately but in the next 5 to 10 years members will enjoy the benefits of the new regulations 2020. In the long-term Sacco, members will earn more dividends as Saccos will have increased surplus funds to pay dividends.

Saccos in Top Tier I and II may not be affected since the majority have probably met the new regulations on capital base and core capital or exceeded.

By Frank Waruhiu

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