The Sacco industry has been long associated with poor corporate governance and such financial atrocities as the infamous pyramid schemes. But all the past is changing with the entry of Savings and Credit Co-operatives Regulatory Authority (SASRA) which has set up rules and regulations to govern this industry. Staff Writer JACKSON OKOTH spoke to the SASRA Chief Executive Carilus Ademba on challenges, strides made so far in the industry and future outlook. Below are excerpts.
What progress has been made in registration of deposit-taking Saccos?
At the moment, we have already licensed 73 deposit-taking SACCOs as per the law which required that all such SACCOs offering front office services reapply to the authority to be allowed to continue with the business. Out of a total of 219 such SACCOs, only 7 such SACCOs did not reapply for a license when the one year period expired. We have been looking at among requirements looking at how these SACCOs have been able to reorganise their books of accounts, reformed their business plans and had their policies approved by shareholders, before renewing the license. We have also issued ‘cease and desist’ orders to all those SACCOs that do not comply with the new licensing requirements. At the moment, we are still going through some 140 applications from those SACCOs that have already submitted their requests for licenses.
Could you briefly mention some of the key elements you are looking at before issuing a license to a SACCO offering front office services?
We are looking at a SACCOs investment and loan policies as well as its guarantees. The authority has also to approve a SACCOs technology platform to ensure that it has the required software that can generate the periodic reports required by SASRA. Those SACCOs seeking for a fresh license also have to submit a list of its board and senior management for vetting purposes. Presently, all the 73 licensed SACCOs submit monthly reports to the authority, similar to what commercial banks do with the Central Bank of Kenya. Those applying for license must also meet the Sh 10 million capital adequacy requirement. Investment of SACCO funds in non-core business must not be more than 10 per cent of its total assets. In addition, some 15 per cent of the SACCOs total assets must be in cash form to adequately provide for its liquidity requirements. SACCOs will also be expected to make adequate provision for loan losses, as is done by commercial banks and other financial institutions.
What will happen to those SACCOs that fail to meet the requirements set by SASRA?
We shall be giving conditional licenses to those who fail to comply with laid down requirements. A window of six months will then be provided for those failing to meet the licensing requirements, including a credible business plan. We are also encouraging those SACCOs that fail to meet our licensing threshold to merge their operations, especially those operating within the same geographical area. In certain circumstances, we shall be encouraging some SACCOs to shut down their front office operations and upgrade their technology platforms before they reapply afresh.
Your focus is still on SACCOs that offer front office services. When will SASRA’s supervision and oversight extend over the entire industry?
Figures indicate that the entire SACCO industry is worth Sh 210 billion with those societies with front office controlling some Sh 171 billion of this amount or 75 per cent of the sector. In the long run, we shall extend our supervision to the rest of the 25 per cent. We are already developing guidelines for the non-deposit taking SACCOs, controlling funds worth an estimated Sh 39 billion. We are still building capacity at SASRA to enable it supervise the entire industry.
What progress is being made to increase SASRA’s supervisory capacity?
We are currently getting a lot of support from the World Bank on capacity building, including setting up a risk-based supervision model. There is already a plan to invest in the required IT platform that will allow SASRA effectively monitor and police the entire industry. Once we have the required software in place, we shall be able to generate the required reports. The World Bank has already provided a resident consultant to support SASRA’s capabilities and capacity. We already have a support staff of 30 people with technical skills, seconded from such institutions as the Central Bank of Kenya and anti-corruption watchdogs.
Will SASRA weed out sticking corporate governance issues long associated with the SACCO movement?
In the past, the SACCO sector has been affected by serious mismanagement issues, especially by their management boards. In most cases, insider loans to committee members end up unrecovered. But with the new regulations in place, including a requirement that reports on insider loans be given to SASRA ON 15th of every month, we have been able to seal this loophole. There are SACCO’s still run by boards that have since entrenched themselves and unwilling to let go of their control. We are insisting that chief executives should take charge of the daily running of SACCO activities, away from the board. The authority has already directed that those SACCOs run by powerful executive committees dismantle these units and leave the society’s staff to run the organisation’s daily routine. Although we have seen some resistance in this area, we are educating SACCOs on the need to embrace this change. The authority is also insisting that all SACCO boards must be composed of professionals, which must include a qualified finance officer, legal counsel and an auditor. The law requires that the SACCO’s internal auditor reports to its audit committee periodically.
How have SACCOs responded to the new rules?
I am that Saccos have responded well to the new regulations. This is fundamental in the sense that there is now increased confidence in this industry. Saccos are financial institutions that must operate under the rules of best practice. A well run SACCO sector will assist the Government to channel its devolved funds, such as the Youth and Women Fund, to intended beneficiaries.
What will happen to those SACCOs that engage in errant behaviour or break the law?
The authority can dissolve the SACCOs board if any errant behaviour is detected. We can also dismiss and or surcharge the society’s chief executive or any of its officers engaged in fraudulent activities. SASRA can also do statutory management of a SACCO until a new board is put in place. If periodic reports are not submitted to the authority, then financial sanctions may be taken against either the board or staff
