Sh13.3b Kuscco heist now shines spotlight on Saccos' governance

The financial troubles bedevilling the Kenya Union of Savings and Credit Co-operatives (Kuscco) have sent Saccos back to the drawing board as they seek to regain the trust of the industry responsible for close to Sh1 trillion of Kenyans’ savings.

Players in the sector maintain that Saccos are still the best bet for those keen on growing their wealth and safeguarding their future, despite the panic elicited by the corruption scandal at the umbrella organisation for cooperatives, leading to the loss of Sh13.3 billion. Kuscco is undergoing restructuring under the watchful eye of the State Department for Co-operatives and industry regulator Sacco Societies Regulatory Authority (Sasra).

About Sh13 billion of Sacco members’ savings are suspected to have been mismanaged over the years by previous Kuscco management, some of whom are now in court facing fraud charges.

Some of the subsidiaries associated with the giant union are earmarked for sale in a bid to recover the lost funds.

This mismanagement has rattled the Sacco sector, with several Saccos that had put their members’ savings in Kuscco now being forced to book the losses in their financial statements.

At least Sh8.8 billion was held by Kuscco as capital shareholding. This is the amount the new management seeks to recover in five years.

At a recent media round table, chief executives of saccos rallied behind the cooperative model of business, saying it is unrivalled in driving financial inclusivity and cumulative wealth creation. Principal Secretary in the State Department for Cooperatives Patrick Kilemi noted how governance issues in the sector usually stem from how investments and borrowing are done.

This, he said, is the reason why the government, through the Cabinet, is working to have new legislation to cure some of these ills.

“The question of good governance was a suggestion because there were ="https://www.standardmedia.co.ke/business/enterprise/article/2001514099/kuscco-to-sell-off-loan-book-in-bid-to-recover-sh88b-amid-fraud">no consequences attached< to a lack of it. That is one of the key ills we are trying to resolve in the new law,” he said.

The PS said there should be transparency in how decisions are made, especially on how cooperatives borrow and invest. He said lack of transparency on this front is what informed an earlier circular that restricted borrowing.

“Where they borrow and how they use that money for one year [before the next Annual General Meeting], no one explains to them,” he said. Mr Kilemi said the Sacco Liquidity Fund (SFL), okayed by a recent Cabinet dispatch to allow Saccos to borrow from each other, will not be for every entity but only for those with excess liquidity.

“If you do not have excess liquidity, why would you buy Treasury bonds or bills? Why would you borrow from the bank and go and invest in T-bills? What is the rationale?” he posed.

“If your deposits are Sh1 billion and your loans are Sh1 billion, SLF is not for you. You only qualify to be a borrower, not an investor.”

Kuscco, in its previous structure, used to run the Central Finance Fund (CFF), which mobilised funds from Saccos. Kuscco then used this money to do business like lending to other affiliated Saccos or subsidiaries. Executive Director Africa Confederation of Cooperatives, Savings, and Credit Associations (Accosca) George Ombado pointed out that governance-related issues have been the reason behind the folding of cooperative banks started by Sacco societies in the region.

He noted that of all such banks, it is only the Co-operative Bank of Kenya that is still in business.

“Accosca believes the reason why the Zambian Co-operative Bank, Nigeria Co-operative Bank, Ghana Co-operative Bank, and Uganda Co-operative Bank went down is because of structures around the governance framework. And governance, from my perspective, is just ="https://www.standardmedia.co.ke/national/article/2001513362/how-kuscco-accumulated-sh53-billion-bad-loans">consciously deciding to do the right thing<,” he said.

Kenya National Police DT Sacco Chief Executive Solomon Atsiaya said the cooperative movement is a resilient model of business as it is owned and controlled by the members for their own social and economic benefit.

“We have enabled people to become millionaires through those small savings,” he said.

“The cooperative sector has more millionaires than the holders of bank accounts. It is the only business model that gives people disciplined savings since it locks your money over time.”

Mr Atsiaya said the cooperative model of business looks at what are the best benefits their members can have to support their economic well-being. 

He gave the example of some Saccos that have benevolent funds that support members during difficult times, such as bereavement.

Some even pay twice the person’s savings as benefits in case of death.

“A bank as an institution is owned by someone. Anyone else comes in to do business. Saccos are more interested in your welfare, not your money,” he said.

The Sh1 trillion asset base in Kenya’s Sacco sector is shared across 6.48 million members spread among 357 cooperatives, according to Sasra data.

Kenya National Police DT Sacco Board Chair David Mategwa, who also chairs the interim Kuscco board overseeing its turnaround, said Kenya’s financial sector is advanced and pointed out that the cooperative space has innovations that are being emulated by other markets.

“When it is being reported out there that Kuscco has gone down, the narrative is that all Saccos had money in Kuscco. That is not the case,” he said.

Stima Sacco Chief Executive Gamaliel Hassan noted the sector employs over 500,000 people directly.

This indirectly impacts 1.5 million lives. For Stima Sacco, this number stands at 10,000, with 9,810 being permanent and pensionable employees.

Dr Hassan referenced the collapse of banks such as Dubai Bank and Chase Bank, noting that the industry did not react with the same hostility when compared to the Kuscco incident.

“I did not see individuals going after the investors,” he said.

“The issue is if one institution has ="https://www.standardmedia.co.ke/business/real-estate/article/2001513659/how-kuscco-board-pocketed-sh18m-for-site-visits-to-housing-project">governance issues<, but it does not mean that all of us have governance issues.”

He said the Sacco and cooperative movement offers members the opportunity to be owners of the entity.

“We are here to provide not just affordable loans but quick affordable loans,” said Dr Hassan.