Cooperatives & CommunitiesDevelopmentEast AfricaFinancialLegalNewsTechnology

Kenyan SACCOs struggling to recover loans, says regulator

NAIROBI, March 5, 2024 – Savings and Credit Co-operative Organisations [SACCOs] in Kenya are owed Ksh 2.7 billion by various government agencies and private companies that approached the financial cooperatives for the loans.

According to figures collected by the SACCO Societies Regulatory Authority[SASRA] the money was owed to 80 regulated SACCOs by various employer institutions in 2022, down from Ksh 3.4bln in 2021.

SASRA says the non-remittance has affected some 66,452 members, who could either not make timely repayments of their loans or save.

“Dealing with this problem of employers who fail to remit SACCO dues is a tricky legal area that the regulator cannot wade into. This is because the employer is an agent of the SACCO and therefore not under the regulator’s supervision,” said Peter Njuguna, SASRA’s Chief Executive Officer.

He said SASRA has been encouraging the affected SACCOs to work closely with employers to understand why there is a delay in remittances.

He added: “In the case of country governments and assemblies, the excuse has always been that the national government has delayed in disbursing funds to the country government.”

While section 35 of the Cooperatives Act stipulates punitive measures that can be taken against employers who fail or delay in remitting SACCO dues, these provisions are said to be weak and unenforceable by the Commissioner for Cooperatives, who is accused of being less effective.

“The employer has a contract with the SACCO, an arrangement that does not involve the SACCO regulator,” said Njuguna, adding that the powers to take action on culprits who fail to remit SACCO dues lie in the office of Commissioner of Cooperatives Development.

Meanwhile, there is hope in the cooperatives sector that the Cooperatives Bill 2023, which recently received cabinet approval, will sort out the problem of non-remittance for good.

The proposed co-operatives law is expected to strengthen the governance framework for co-operatives by re-introducing the role of cooperative commissioners and also expanding the protection of co-operative members’ funds through enhanced supervision and regulation.

“The compounded effect of delayed or defaulted remittances is the perennial failure of these regulated SACCOs to meet obligations to members arising from the resultant liquidity constraints. This, in turn, leads to members’ apathy and loss of confidence, as well as high levels of defaulted loans.”

SASRA has been in consultation with the other stakeholders and policymakers to have a re-look at the efficacy of the prevailing legal and operational framework of the concept of remittances by employer institutions of deductions made and due to SACCOs.

SASRA says that whereas the legal and regulatory environment is being reconsidered as a long-term solution, financial SACCOs are advised to deepen the use of their withdrawable deposits savings account [FOSA] as the payment point channel of the salaries and other income streams in respect of their members.

They have also been told to use that payment point to deduct all the deduction dues from their members.

Reliance on direct employer deductions is being discouraged and should be reduced to the bare minimum and used only where necessary.

Undermining financial performance

The SASRA Annual Supervision Report 2022 noted that the perennial failure by various employer institutions to remit Sacco deductions continues to undermine the financial performance of these financial societies despite various policy and administrative measures being put in place to address the problem.

These non-remitted funds belonged to a total of 66,452 members, either as loan repayment deductions or non-withdrawable [BOSA] savings deductions as of September 2022.

Liquidity Crunch

SASRA says the bulk of the non-remitted funds as of September 2022 were largely on account of loan repayments, which amounted to Ksh 2.02bln, equivalent to 74.78 percent of the total non-remitted refunds.

The non-remittances also had a direct impact on the regulated Saccos reported interest income, which is usually suspended once the loans become delinquent.

DT-SACCOs were the most affected segment by the non-remittances, with 57-DT-SACCOs reporting being owed deducted but not remitted funds by various employer institutions on account of loan repayments, with the aggregated loan repayments owed amounting to slightly over Ksh 1.75bln.

County Governments and Assemblies owed the highest amounts to financial co-operatives, which stood at Ksh 1.35bln and accounted for 49.97 percent of the total non-remittances and affecting a total of 43,139 members of regulated societies, who are principally their employees.

The highest proportion of the funds owed by County Governments and Assemblies were due towards loan repayments, implicitly denoting the poor quality of the loan portfolios of the regulated SACCOs.

Public universities and tertiary colleges had the second highest amount owed to regulated SACCOs on account of non-remitted deductions, which stood at Ksh 620.52 million, accounting for 23.01 percent of all the non-remitted deductions.

The Private sector companies and the state parastatals owed SACCOs Ksh 428.95mln and Ksh 143.09mln, representing 15.91 percent and 5.31 percent of the total non-remitted deductions, respectively.

The public-owned companies, which include public sector water companies, owed regulated Saccos a total of Ksh 64.18mln, representing 2.38 percent of the total non-remitted deductions.

The regulator points to this perennial failure by employers to remit SACCO dues as one of the reasons some financial cooperatives s are under strain or have closed shop.

Buy your copy of thecooperator magazine from one of our country-wide vending points or an e-copy on

Related Articles

Back to top button