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How Saccos rip off members of their life savings

Shareholders of non-deposit taking savings and credit cooperative organisations (Non-DT-Saccos) continue to suffer losses as managers invest savings on non-core activities.

However, this may not go on for long if the government makes good on the promise to revise the outdated policies currently guiding the conduct of non-DTS which have left savings of members exposed to theft or misuse.

The non-DTS, popularly known as Back Office Service Activities (BOSAs), despite receiving huge deposits from Kenyans have continued to operate without strong regulations.

This makes it easy for founders, directors and managers to divert savings to other activities other than those prescribed in law.

Stakeholders in the cooperative movement blame this on the  Cooperatives Act, which they say, does not fully comply with the ever-changing growth of the Saccos owing to the high volatility of liquid cash handled by them.

The Act, they say is unable to regulate the BOSAs, making them breeding grounds for dubious actions by the founders, directors and managers to embezzle members’ fund.

The government agrees that lack of adequate checks and balances to ensure the safety and soundness of members’ money has made Saccos,  especially, non-deposit taking savings and credit cooperative societies, a ticking time bomb.

Cooperatives Cabinet Secretary, Peter Munya said lack of strong regulations to manage Saccos that are not controlled by Sacco Societies Regulatory Authority (Sasra) has led to high cases of fraud, leading to majority of members losing their deposits.

Swindle Kenyans

“Cooperative Act provides suitable grounds for the formation of Saccos but  at the same time lacks power to regulate the same, thus creating a leeway for prominent individuals who own non-DTS to swindle Kenyans of their hard-earned money,” he said.

This segment of Saccos is also under scrutiny for being part of thousands of cooperatives that for years have not been filing annual returns to the Commissioner for Cooperatives, making it hard for the government to intervene in case an institution collapses.

The cooperative movement insiders say some of these Saccos run daily adverts in the local media promising Kenyans lucrative opportunities, such as cheap land and loans.

After mobilising funds they add, some of these institutions close down and the purported owners disappear with members’ savings. Munya said most of these institutions are being managed like pyramid schemes and cartel like and are not licensed. 

“The core activity of receiving deposits and offering loans to the same members have been completely diluted as the directors and managers place the investors’ money to activities that suit only their interests,” he added.

Saccos in the country are categorised into two – Deposit Taking Saccos (DTS),  currently managed by the Sasra and non-DT-Saccos under the control of the Commissioner for Co-operatives. 

Sasra regulates 174 (DTS) that controls deposits which amounted to Sh342.3 billion as at end of December 2018 while 1,683 audited non-DT-Saccos controlled Sh58.7 billion as at end of December 2017.

In December 2018, Munya issued a notice of intention to make regulations under the provision of Section 3(1) (b) of the Sacco societies Act (SSA) as read with Section 68(1).

“Section 3(1) (b) provides that Cabinet Secretary may make regulations specifying  the non-deposit taking business to which  the SSA applies and prescribing  the measures for the conduct of specified business section 68(1) of the SSA,” states a report compiled by a taskforce constituted last year to develop the regulations.

Last week, Munya presided over a co-operative movement consultative forum to validate the regulations. The regulations gave Sasra powers to ensure the institutions are run professionally and directors and managers adhere to the code of conduct.

Sasra developed the new regulations targeting non-DT-Saccos and are currently being fine-tuned after the validation workshop.

Recent concerns

Sasra Chief executive officer, John Mwaka said the development of the regulations is supported by recent concerns about non-deposit taking Saccos.

He said the Saccos have been failing  to honour contractual obligations with members in terms of availing credit facilities  and or refund of non-withdrawable deposits upon exit, thus risking collapse with large amounts of money belonging to members.

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