Should SASRA Be A Department In Central Bank Of Kenya As Focus Shifts Sharply To How They Have Failed To Bring Good Governance In The Sector?

Savings and Credit Cooperative Organizations (SACCOs) in Kenya have long been seen as a pillar of financial inclusion, providing credit to millions who might otherwise be excluded from mainstream banking. SACCOs are a source of hope for many Kenyans, offering affordable credit, high returns on savings, and the promise of collective financial growth. Yet, this image has been severely tarnished by repeated scandals involving mismanagement, fraud, and corruption. The stories of misfortune are numerous, with members facing the harsh reality of delayed dividends, unprocessed loans, and disappearing deposits. Each new scandal raises the same urgent question: should Kenya’s SACCOs come under the Central Bank of Kenya’s (CBK) oversight to enforce stricter governance standards?

The scale of the problem is alarming. SACCOs in Kenya collectively hold deposits worth billions of shillings, with the top-tier SACCOs managing portfolios that surpass those of some small commercial banks. Despite this significant financial footprint, SACCOs are currently regulated by the Sacco Societies Regulatory Authority (SASRA), which has struggled to keep up with the rapid growth of the sector. Reports from SASRA show that in 2023, SACCO deposits stood at over KSh 500 billion, a substantial increase from previous years. However, with this rise in deposits, the risk of financial mismanagement has also skyrocketed. SASRA’s limited resources and oversight capabilities have led to recurring cases of fraud and misappropriation, impacting the trust members place in these cooperatives.

Consider Ekeza SACCO, once a beacon of hope for many low-income Kenyans. Its founder, David Ngari, was accused of diverting millions into personal projects, leaving members stranded without access to their hard-earned savings. The outcry from Ekeza’s mismanagement triggered government intervention, but by then, the damage was already done. Members who had trusted Ekeza with their financial futures found themselves without recourse, highlighting the glaring gaps in regulatory oversight.

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Stima Investment SACCO, a prominent player among SACCOs, also suffered from poor governance. Mismanagement and poor investment decisions led to delays in dividend payments and access to funds. Members, who once viewed Stima as a reliable partner in wealth creation, were left questioning the integrity of SACCO leadership. This is a recurring theme—SACCOs that have scaled rapidly often fail to implement robust governance structures, leaving them vulnerable to internal mismanagement.

The Nairobi Teachers SACCO’s case provides another example of the impact poor governance can have. Allegations of corruption and fund misappropriation created liquidity challenges, disrupting services to members. Teachers, who were among the primary members, faced long delays in receiving dividends and loans, causing a crisis of confidence in the cooperative. Similar stories echo in Ukulima SACCO, where poor investment decisions resulted in protests and demands for leadership accountability.

SACCOs like Moi University SACCO and Hazina SACCO have also fallen victim to mismanagement. In the case of Moi University SACCO, allegations of fraud and inadequate financial controls resulted in a severe liquidity crisis, leaving members unable to access their money. Hazina SACCO’s controversial investments and alleged corruption led to a series of financial difficulties, with members struggling to get their loans processed. These stories demonstrate a pattern where weak governance invites financial instability.

Egerton University SACCO, like many university-based cooperatives, was initially established to serve the financial needs of university staff and affiliated members. Over the years, the SACCO has experienced both periods of growth and challenges. In recent times, it has faced scrutiny over concerns related to internal management practices and financial transparency. Reports of delayed loans and slower-than-expected dividend disbursements have sparked unease among members, who rely on the SACCO for accessible credit and savings. The SACCO’s struggles underscore the need for stronger oversight and accountability mechanisms, particularly in institutions where members’ trust hinges on the reliability of financial management. As Egerton University SACCO works to regain confidence, addressing governance and communication issues remains a priority to ensure that it can continue serving its academic community effectively.

The Mwalimu National SACCO, Kenya’s largest teachers’ SACCO, serves as a stark illustration of how even well-established SACCOs can make catastrophic decisions. Mwalimu’s controversial acquisition of Equatorial Commercial Bank is a case in point. The bank failed to perform as expected, leading to financial strain and discontent among members. Mwalimu’s misstep not only affected its own stability but also served as a warning sign to other SACCOs about the perils of aggressive and poorly thought-out investments.

Transparency, accountability, and prudent financial communication are the lifeblood of any thriving financial institution. In the case of SACCOs, these elements are often missing. Chai SACCO, which faced internal corruption, saw cash flow problems affect its ability to provide loans and dividends. Afya SACCO’s troubles with embezzlement and corruption have similarly hurt members’ trust, with delays in payouts causing frustration. Waumini SACCO’s financial instability, fueled by theft and poor fund management, underscores the need for stringent internal controls.

The Kenya Union of Savings & Credit Co-operatives (KUSCCO), which acts as an umbrella organization for many SACCOs, has also not been immune to controversy. Allegations of mismanagement within its associated SACCOs have raised questions about KUSCCO’s role and efficacy in guiding the sector. This ripple effect shows that when governance fails at the highest levels, the consequences are far-reaching, affecting even the most grassroots cooperative groups.

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PanPaper SACCO, originally tied to the Pan African Paper Mills, was established to support the financial needs of employees and the wider community in Webuye. For years, it played a pivotal role in providing credit, savings, and investment opportunities, particularly during the factory’s peak operational years. However, the collapse of Pan African Paper Mills had a significant impact on the SACCO’s stability. As the mill’s fortunes dwindled, so did the SACCO’s, leading to liquidity challenges and strained cash flows. Many members, who were former employees, struggled to access their savings and loans, creating a crisis of confidence in the cooperative. In recent years, attempts to revive PanPaper SACCO have faced hurdles, primarily due to lingering debts, poor asset management, and a lack of diversification in investments. For PanPaper SACCO to regain its footing, reforms aimed at modernizing governance, improving financial transparency, and broadening investment portfolios are urgently needed to restore faith among members and ensure long-term sustainability.

The case of Harambee SACCO highlights the damage that corruption can cause. Allegations of embezzlement within its leadership disrupted operations and led to member complaints about access to savings. Maisha Bora SACCO’s liquidity problems and leadership failures similarly caused dissatisfaction among members. Both cases illustrate how mismanagement impacts not only the financial health of the SACCO but also erodes the sense of community that SACCOs are meant to foster.

The narrative of Sheria SACCO, with its cases of fraud and financial instability, and Kiambu Teachers SACCO, struggling with corruption, point to a systemic issue. When accountability measures are lacking, members bear the brunt of poor leadership decisions. In the case of Busia Teachers SACCO, allegations of embezzlement left members grappling with the fear of losing their savings, further underscoring the importance of honest governance.

Standard Group SACCO, like many others, has faced challenges with financial transparency. Reports of poor investment choices and allegations of fund diversion raised concerns among members about the security of their deposits. The pattern is clear: without proper checks and balances, SACCOs are vulnerable to the whims of unscrupulous leadership.

SASRA’s efforts to regulate the sector are commendable, yet insufficient. The regulatory body faces challenges in resources and enforcement power, limiting its ability to act decisively against rogue SACCOs. Despite tightening oversight, SASRA’s annual reports often reveal ongoing cases of non-compliance and delayed audits among SACCOs, hinting at the scope of the problem. In 2022, SASRA indicated that over 30 SACCOs were under scrutiny for various infractions, highlighting the urgent need for more robust oversight.

SACCOs serve a critical function in Kenya’s financial ecosystem, particularly in rural and underserved areas. They provide a lifeline for small-scale farmers, traders, and civil servants, offering a chance to save and borrow at favorable rates. Yet, this vital role is threatened by poor governance. For SACCOs to flourish, they must embrace principles of transparency, accountability, and sound financial communication.

Prudent communication, especially in times of financial difficulty, is essential. Many SACCOs fail to provide clear updates to members when they experience challenges, exacerbating panic and leading to mass withdrawals that further strain liquidity. For instance, members of Afya SACCO complained about a lack of timely communication regarding their payouts, causing anxiety and uncertainty. Addressing these communication gaps could mitigate some of the reputational damage SACCOs face during crises.

The question of whether SACCOs should come under CBK’s oversight is now more relevant than ever. With billions at stake and the livelihoods of millions hanging in the balance, SACCOs need a stronger regulatory framework. CBK, with its established track record of overseeing commercial banks, could bring much-needed stability and accountability to the SACCO sector. Enhanced governance standards, stringent audit requirements, and clear financial disclosure guidelines could transform the cooperative landscape.

Furthermore, it’s crucial to ask whether SACCO leadership should undergo stricter vetting processes. Currently, SACCO board members often lack the financial expertise necessary to guide such institutions effectively. This gap in competency contributes to the poor decision-making seen in cases like Mwalimu National SACCO’s bank acquisition. Implementing mandatory training and certification for SACCO leaders could ensure they are better equipped to manage large pools of member funds.

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A key lesson from the commercial banking sector is the importance of depositor protection. SACCOs currently lack a clear depositor insurance mechanism, exposing members to significant risks in the event of failure. Introducing a SACCO-specific insurance scheme could help shield members from the consequences of leadership failures. This safety net, akin to the Deposit Protection Fund for banks, would go a long way in restoring confidence in the cooperative sector.

The impact of SACCO failures goes beyond financial loss; it undermines the cooperative spirit that SACCOs were built upon. When members lose trust in their SACCOs, they also lose faith in collective financial empowerment, which has broader social implications. For SACCOs to regain their standing, reforms are not just necessary; they are urgent. A comprehensive review of the SACCO regulatory framework, coupled with decisive action to hold leaders accountable, could set the stage for a more resilient cooperative sector.

The time for reform is now. Kenya’s SACCO sector is at a crossroads, and the path forward will determine the financial well-being of millions. Will SACCOs remain a beacon of financial hope, or will they continue to be mired in scandal and mismanagement? Stronger governance, greater accountability, and more rigorous oversight are the cornerstones of a thriving cooperative sector. Whether under SASRA’s revitalized framework or CBK’s watchful eye, the message is clear: Kenya’s SACCOs need reform, and they need it urgently.

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