One Sacco has sued the industry regulator over its directive for Kenya Union of Savings and Credit Co-operative (Kuscco) affiliates to absorb financial losses arising from mismanagement at the Saccos’ umbrella body.
A forensic audit at Kuscco revealed that the Saccos’ umbrella organisation lost Sh13.3 billion between 2018 and 2023, including Sh206 million from unauthorised withdrawals from its savings bank account.
Nyati Sacco Society has sued the Sacco Societies Regulatory Authority (Sasra) over a directive for Kuscco members to provision for the loss of their money, including members’ deposits invested in Kuscco.
Nyati’s lawyer, Earnest Kimaita, appearing before High Court Judge John Chigiti in Nairobi yesterday, termed the directive unfair and irregular. “The applicant contends that the aforesaid guideline, which must be implemented immediately as per the respondent’s letter above mentioned, was issued ultra vires, is irregular, unfair and contrary to the objects and functions of the respondent with regard to the applicant.
“The applicant craves for the leave of this honourable court to urgently institute judicial review proceedings in order to quash the impugned guideline of the respondent herein which is manifestly unlawful and unjust,” said Kimaita.
Special deposits
The lawyer said Nyati Sacco had invested some of its members’ funds in Kuscco in shares, savings, and special deposits under the central finance fund. He said that by the time Kuscco’s ship started rocking, Nyati had 6,900 shares worth Sh690,025. At the same time, he said, it had Sh4.1 million saved under the Jungu Kuu central finance programme and Sacco special deposits worth Sh 86.4 million.
The latter had a maturity date of April 30, 2024, and the Sacco, therefore, ought to have received its money back by May 1, 2024.
“Upon maturity, the applicant sought to access these funds, but Kuscco withheld the same from the applicant without giving any plausible explanation,” Kimaita told the court.
He said Kuscco’s directive puts members’ hard-earned savings at risk without following the law. Kimaita accused Sasra of shielding Kuscco from its financial obligations despite the umbrella Saccos organisation not being declared insolvent by any court. “ In the impugned guideline, the respondent only alleges that ‘Kuscco Ltd has been reported to be facing financial challenges’ without citing any authoritative source of the alleged reports,” he said.
In his supporting affidavit, Nyati chief executive Julius Bett said the regulator’s decision exposed Saccos to massive losses if they are forced to write off financial investments held by Kuscco. He said Saccos should be allowed to recover their investments to shield members from financial ruin. “The applicant has no funds of its own, and the funds invested in Kuscco Ltd belong to our members; as such, we have a duty to protect the aforesaid funds from loss, especially when the same is recoverable. We are appalled by the respondent’s Guideline since we firmly believe that the respondent should be at the forefront of ensuring that our members’ funds are protected,” said Bett.
He said Sasra chief executive Peter Njuguna’s letter to Saccos was tainted with illegality and irregularity and urged the court to quash it.
“The respondent’s guideline complained of above is jeopardising the applicant and risking loss of our members’ money, and yet Kuscco has not been declared insolvent and/or unable to meet their financial obligations by any court of law,” said Dr Bett.
The Kuscco CEO wrote to the Saccos on January 14 this year, indicating that it had been reported that Kuscco had liquidity issues.
“In the recent past, KUSCCO Ltd has been reported to be facing financial challenges resulting in its inability to meet obligations associated with financial investments made therein by its member SACCO societies, including but not limited to refund of the deposits placed and savings upon maturity,” wrote Mr Njuguna.
He said that Section 33(3b) of the Sacco Societies Act, 2008, requires SACCOs to prescribe an asset review system that adequately identifies risks and assures that they have set aside provisions to settle them.
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