Saccos urged to strengthen risk management to safeguard their resources

More than 90 per cent of cooperative societies in the country lack effective risk identification and mitigation strategies, a situation that stakeholders fear, if not addressed could lead to increased losses of members’ funds.

At the 3rd annual Cooperative Movement Stakeholders’ forum, held in Naivasha, cooperative players attributed the growing lack of strategies to the insufficient capacity of board of directors and top management to handle existing risks, as well as their inability to identify emerging risks.

Alan Riungu, a risk management expert, points out that only few cooperative societies have made efforts to implement effective strategies to address the risks threatening the survival of their business.

“Cooperative societies are facing threats ranging from climate change, cybercrime, fraud, weakening governance structures, insufficient knowledge among directors and management, as well as lack of succession plans,” Riungu explains.

He added, “Lack of sound risk identification and management strategies has left cooperative businesses vulnerable as both internal and external shocks increase. Therefore, it’s up to cooperative leaders to implement comprehensive measures to mitigate these growing threats in order to remain operational.”

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He warns severak cooperatives which have failed to manage risks have gone down.

Riungu further noted that cooperative societies have failed to put in place well-resourced, robust structures to guarantee business continuity. He emphasized that current business realities require strong governance structures, equipped with both human resources and adequate resources.

Daniel Marube, Chief Executive Officer of the Co-operative Alliance of Kenya (CAK) stated, the forum provided an opportunity for self-reflection, allowing participants to evaluate their actions, achievement and plans to propel cooperatives going forward.

He explained, they are currently addressing risk management within cooperatives. “As you know, cooperatives bring together the resources of millions of our members, therefore it is very important, we adopt the risk identification, management and mitigation programs within our daily operations to safeguard the resources of our members,” he says.

Marube adds, “Our members have entrusted us with their resources and as you know risk, is anything that can disrupt day-to-day operations. Therefore, as handlers of our members’ it is essential that we take necessary measures to mitigate potential risks.”

For instance, he asks, how can agricultural cooperatives which are impacted by climate change implement measures to support farmers in adopting smart agriculture? How can they protect cooperatives from any cyber-attacks and similar threats?

“So we have been identifying these challenges and recognizing that its high time for us, as cooperatives to educate ourselves and put the necessary measures in place to safeguard the wealth of our people,” he says.

Speaking at the same event, Wycliffe Oparanya, Cabinet Secretary for Ministry of Cooperatives and MSMES praised the cooperative sector as a cornerstone of socio-economic development in Kenya.

The CS revealed that the cooperative movement has witnessed remarkable growth, contributing significantly to job creation, wealth generation, financial inclusion and community empowerment.

“With over 14 million people engaged as cooperators and more than 500,000 employed in the sector, the role of cooperatives in shaping our nation’s prosperity cannot be overstated,” he says.

Despite many cooperatives upholding their values, Oparanya blamed a few that failed to adhere to good governance principles, resulting in financial losses and eroding public trust. This tarnishes the reputation of the entire movement, overshadowing the remarkable efforts of cooperatives committed to improving their members’ livelihoods.

The CS explains, it is for these reasons that the government is putting in place measures to revitalize the cooperatives through development and implementation of several legal frameworks to address the challenges facing the sector.

Oparanya disclosed the Ministry is finalising the Cooperatives Bill No. 7 of 2024, which will enhance governance and legal collaboration between national and county governments.

The CS noted some savings and credit cooperatives societies have been sacrificing professionalism and accountability at the altar of huge dividends to the extent of borrowing to pay dividends and even declaring dividends from losses in order to make members believe their Saccos are financially stable, when in the actual sense, they are struggling.

He explains, “It is essential to instill ‘good dividend manners’ within cooperatives. Prioritizing long-term sustainability over short-term benefits ensures cooperatives remain financially robust and capable of meeting members’ future needs.”

Oparanya revealed that Commissioner for Cooperatives Development was also coming up with policy that will streamline operations in the sector such as borrowing to pay dividends, declaring dividends from losses, and paying unsustainable dividends.

At the same time, the CS stated the government is working on a framework called the ‘Mwongozo for Cooperatives’ that aims to promote transparency and accountability, as well as training and capacity building manuals, in partnership with the Cooperative University of Kenya, to enhance leadership skills among cooperative members.

The government is relooking at the Sacco Societies Act to be amended to establish a central liquidity and shared services platform to streamline the financial sector.

The CS challenged cooperatives to embrace technology, “In today’s digital era, cooperatives must embrace technology to remain competitive and resilient.”

Macloud Malonza, Chairman CAK warned those who misuse cooperative funds and assets.

“Appropriate, corrective action needs to be taken to ensure that those who misuse cooperative resources are held accountable,” he says, adding that transparency is key to maintaining trust and are committed to making these actions visible to all.

Malonza reflects on the hurdles faced in addressing governance concerns while working to build prosperity within cooperative movement. He states, with the help of upcoming Cooperatives Bill, CAK is committed to resolving governance issues within movement.

“The enactment of the new Cooperatives Bill, promises to bring clarity and enhance accountability, laying a solid foundation for effective governance,” he says.

CAK, reveals Chairman, is helping cooperatives embrace innovative solutions in their businesses. He explains, “Through CoopTec, we seek to provide a Shared technology platform, which is an opportunity for cooperatives to modernize, streamline operations, and leverage technology to deliver better services.”

Malonza urges cooperatives leaders to unite, as the strength of Kenya’s cooperatives lies in our unity.