Non-remittances, land investments amplify financial woes of Afya Sacco

The minutes of the 43rd Annual Delegates Meeting held last year have offered a glimpse of the financial woes bedeviling Afya Co-operative Savings and Credit Society (Afya Sacco) that resulted to a chaotic gathering in May.

In the 47-page document, issues to do with liquidity challenges were discussed with a resolution issued to raise the minimum share capital from Sh20,000 to Sh50,000.

The liquidity challenges also affected those who wanted to withdraw their savings - either upon retirement or voluntarily, even as the sacco plans to retain older members by enticing them with tailored products.

The members also lamented in the meeting about the Sh20,000 limit withdrawal on ATMs, which the chairperson, Beatrice Mogire, explained was due to security-related issues.

A major cause however, for the cash related challenges, is the non-remittance of dues by counties which then stood at Sh740 million.

“The non-remitted amounts as at March 2024 were around Sh740 million, which had led the management to slow down on loan processing. She urged the delegates to be patient as the management was making all the efforts to follow up on the non-remitted amounts, of which the Commissioner promised to assist,” the minutes read in part.

The minutes show some members have been trying to partially withdraw their savings, which have not been coming through.

The chair explained that the waiting period had been extended to one month for partial withdrawal due to liquidity challenges. “She added that management had come up with senior citizens products to discourage pulling out of members, which in the long run might affect the Society’s cash flow,” the minutes read.

In the delegates meeting held on May 31, where several factions of membership of the sacco had earlier vowed to oust the board, chaos erupted as the members pushed to vote out the management.

The chaos unfolded just days after the Cabinet Secretary for Co-operatives and Micro, Small and Medium Enterprise (MSME) Development Wycliffe Oparanya inaugurated a committee to audit the sacco sector and recommend changes in law and regulations which are expected to bring sanity in these entities.

As it stands, the government has frozen registration of new saccos to aid this exercise. The May 31 meeting held in Nairobi turned into a shouting match, with the delegates insisting that the board leave the office. “Honestly, our board, you have let us down. Among you, the one who has members’ goodwill at heart, kindly just start walking out,” a delegate is heard saying in the meeting.

Another one jumps in: “If we can dissolve the board and constitute another, that will be okay.”

One of the officials chimed in, directing the delegates to do the ousting procedurally. “What you have raised is a point of order. And that point of order has a procedure on how it can be executed. By standing there and raising a point of order, you don’t expect people to obey. You are expected to execute according to the law,” she said.

Days before the meeting, a section of members of the sacco had raised their concerns on the financial health of the sacco.

In Vihiga County, a section of the sacco called out the management, insisting that the board should be dissolved due to financial misappropriation.

“We are devastated because a sacco that we thought is going to help is now suppressing us. We will not accept. As Vihiga membership, if something is not done, we will mobilise across the country so that eventually we get justice,” said Zadock Miheso.

Daniel Aseka, another member, lamented how he has been taken back and forth to get his savings after retirement. Even visits to Nairobi have not helped.

“It came to a point that they were no longer picking up my calls,” he said.

At the same time, in Nairobi, another group called a press conference where they alleged that up to Sh600 million has been misappropriated by the society’s management putting the society at risk of liquidation.

They argued that members have been denied emergency loans, and those who have applied to withdraw their savings have not been able to access any money.

“Retired members as far as 2021 to date remain unpaid despite repeated requests to Afya Sacco, yet many of them are suffering from chronic illnesses,” said Shem Oino.

On May 13, a statement signed by the Afya Sacco Society Ltd board refuted the claims by its members, saying that the loans are being disbursed.

“While different loan products may experience varying timelines based on available liquidity and remittances, loan processing is actively ongoing, with no backlog in emergency loans and steady improvement across other loan categories,” the statement reads.

The statement adds that some delays in processing have been due to late remittances of member contributions by certain county governments.

“This directly impacts cash flow and the pace of loan disbursement. We are actively engaging the affected counties to expedite these remittances and ensure stability is maintained,” it adds.

While non-remittance has played a role in the cash flow challenges the sacco is facing, minutes of the 43rd delegates meeting show that the source of the financial challenges could also be due to investment in land projects.

This was raised in the meeting by a member, Carolyne Nyamoti from Gucha branch, who observed that while Afya Investments land project was a good idea, the society had spent a lot of funds that would have been used to give out loans to members.

She proposed that the management could slow down on land projects due to the liquidity challenges.

The chairman concurred with the sentiments and stated that an audit was carried out on Afya Investments' subsidiary and management was in the process of restructuring investments since money from Sacco was being used to buy land and took a long time to bring back returns.

“In future, Afya Investments Cooperative Society Ltd will be made an independent subsidiary of Afya Sacco and source its own funds. She assured the delegates the Society would not engage in any new land projects until the restructuring was fully done,” the minutes read.

In the meeting, it was approved to increase share capital amounts, a recommendation that was also fronted by the external auditor as one of the ways to handle the liquidity challenges. This was also to reduce the dependence of the sacco on borrowings from external financial institutions.

At the meeting, the chair explained that further borrowing could not be undertaken then due to costs.

The minutes state that on the current financial challenges being experienced, the chairman stated that it was not economically viable to borrow funds from banks or financial institutions due to the high interest rate.

“She advised that the best option would be to mobilise internal funds or the society to raise interest rates on loans,” the minutes read.

As such, the decision to increase the share capital was reached, and a resolution was passed to raise it from Sh20,000 to Sh50,000 for members, Sh100,000 for delegates, and Sh200,000 for board members. “The share capital to be raised within three years,” the minutes read.

As at December 31, 2023, Afya Investment Co-operative Society Ltd, the investment arm of the sacco, had total assets of Sh586.5 million with Sh320.5 million liabilities. Members funds in the entity stood at Sh42.3 million in the period a drop from Sh49.5 million.

Operating income of the entity was Sh1.2 million in the period, a drop from Sh2.9 million in 2022.

The 2023 financials for the larger Afya Sacco Society Ltd as contained in the minutes show external borrowings in the year stood at Sh871.0 million compared to Sh854.8 million which is 3.82 per cent and 4.10 per cent of total assets respectively.

From the financials, the ratio of core capital to total assets which should be at least 10 per cent had dropped in the year to 9.86 per cent from 10.13 per cent in 2022.

However, core capital to total deposit was above 8.0 per cent at 12.90 per cent while institutional capital to total assets which should be 8.0 per cent stood at 4.72 per cent.

The other specification where the sacco had fallen short as per the regulators recommendations is the ratio of liquid assets to total deposits and long-term liabilities which stood at 2.49 per cent below the specified 15 per cent.

Proposed dividends in 2023 stood at Sh119.2 million compared to Sh137.8 million. Total revenue in 2023 stood at Sh2.6 billion, with an interest income of Sh2.3 billion. In the 2024 financials, total interest income dropped to Sh1.7 billion.