State probes Mwalimu Sacco’s bid to buy Merali bank

The Government has halted Mwalimu Sacco’s bid to acquire Naushad Merali’s Equatorial Commercial Bank (ECB) and ordered an inquiry into the transaction. This is despite the buyout’s approval by regulators.

Commissioner of Co-operatives, Patrick Musyimi yesterday appointed an inquiry team to probe several allegations of irregularity on the Sh1.6 billion deal and submit a report to him.

Last week, Mwalimu Sacco said it had purchased a 51 per cent controlling stake in the commercial bank and had received regulatory approval from the Central Bank of Kenya (CBK), Competition Authority of Kenya (CAK) and Sacco Societies Regulatory Authority (Sasra).

A statement from Mwalimu Sacco said the deal had gone through a rigorous financial and legal due diligence by Ernst and Young and Mose and Mose Advocates and that all the regulators had raised no objection and given the transaction a go ahead.

The Sacco’s Chief Executive Robert Shibutse said the transaction was also approved by the society’s special delegates meeting in September last year.

However, a letter from the Co-operatives Alliance of Kenya Limited, the umbrella body for co-operative societies in the country, sent to Industrialisation Cabinet Secretary Adan Mohamed, said Mwalimu Sacco members had not given their consent for the purchase of ECB.

It accuses Mwalimu Sacco and ECB of flouting due process at every stage of the transaction despite the massive value of members’ investment involved. “No specific Annual Delegates Meeting approvals have been granted to authorise the investment,” it stated in a statement. “Instead, very limited disclosure promising unsubstantiated returns to members was presented for delegates to approve in a broadly worded resolution.”

Terms of investment

The Co-operatives Alliance further states that the decision to purchase ECB was unclear in the terms of investment, how much money was involved, potential risks, returns and a financing model for the investment.

“The delegates of Mwalimu Sacco have given no specific approval for the Sacco to purchase shares in Equatorial Commercial Bank,” it stated.

Last week, the Sacco Societies Regulatory Authority stated that it had granted the deal between the two institutions green light because it was within the confines of the country’s financial regulations.

“Mwalimu Sacco had raised the minimum share capital of sh1 billion reacquired by the Central Bank and even surpassed it by Sh2 billion,” stated Carilus Ademba, Sasra chief executive. “At the same time, Mwalimu Sacco is not transitioning into a bank but has only invested in one which will be its subsidiary to help Mwalimu Sacco in its investment activities,” said Mr Ademba.

Mr Musyimi did not disclose how long the inquiry would take but insisted that it was being conducted for the benefit of Mwalimu Sacco members.

“Taking this move subjects the matter to a rigorous process that will ensure that any pertinent issues are addressed before the deal can be allowed proceed, “ he added. “We will share the details of the inquiry as soon as they are finalised,” said Musyimi.