The government has announced several strict measures to regulate the SACCO industry following the scandal involving the Kenya Union of Savings and Credit Co-operatives (KUSCCO).
Commissioner of Co-operatives David K. K. Obonyo issued an update on Monday, March 3, detailing new measures set to be implemented to regulate SACCOs, which will now be required to comply with stricter guidelines in a bid to curb the widespread mismanagement of members' funds.
Obonyo revealed that the Ministry of Co-operatives had conducted a thorough inspection through ministry auditors and KUSCCO’s Interim Board, uncovering startling findings. One of the key discoveries was that the exaggeration of dividends was among the major financial irregularities the institution was facing.
To address this issue, the commissioner outlined several directives issued by the ministry to regulate how SACCOs declare and distribute dividends and interest on deposits, preventing unrealistic or unsustainable returns.
"One of the issues has been the falsification of records," Obonyo said. "KUSCCO was trying to declare surplus dividends from losses, which was wrong."
Addressing what he termed as the "arranged misappropriation of funds," Obonyo added, "We have identified the root cause of the problem. We have issued a circular to regulate the issuance or declaration of dividends on the interest on deposits. That alone will cap exaggerated dividends."
Furthermore, the government has announced plans to regulate SACCO investments to ensure they focus on their core functions—mobilising deposits and lending.
Under the new regulations, SACCOs wishing to venture into projects such as housing and land will be required to register a separate entity.
"We have issued a circular on investments. SACCOs will stick to their core mandate. We don’t want them diverting their members’ funds, which could result in financial losses for members," the commissioner asserted.
The new measures come just weeks after the DCI apprehended four culprits believed to be part of the multi-billion scandal at KUSSCO.
Besides conspiracy to defraud, the culprits faced charges including theft allegedly committed by the directors and officers of companies, which is contrary to Section 282 of the Penal Code, and making false documents.
A forensic report on KUSCCO has since been handed to the Directorate of Criminal Investigations (DCI) for further scrutiny before further action and punishment for any wrongdoing.
Meanwhile, the Cooperatives Bill 2024 is under review in the Senate and if it is passed, it will radicalize how SACCOs operate.
Amendments to the Sacco Societies Act could also see the introduction of a Central Liquidity and Shared Services Framework, which would provide more mechanisms to stabilise SACCOs during times of financial adversity.
