Sacco non-remittances grows as more firms face turbulence

The government is facing a challenge in dealing with non-remittances of Sacco contributions, even as the law allows the Commissioner of Co-operative Development to reprimand culpable employers.

Principal Secretary in the State Department for Co-operatives Patrick Kilemi says while the law has bestowed powers to the Commissioner of Co-operative Development, the recent business environment and symbiotic relationship between the National Treasury and public institutions make applying this law a challenge.

He says in cases where the business environment has been understandably a challenge, such cases can be gauged owing to the challenge the pandemic bestowed on the economy.

"Sometimes companies do get into real trouble with their cash flows. During the Covid period, most media houses went into challenges since they were down on advertisement revenue. Sometimes when the business environment is so hostile to the organisation, we can have a discussion on payment," he said.

However, when public institutions are involved, then the symbiotic relationship between the National Treasury and the particular employer steps in and it becomes a challenge to apply the law.

Public institutions, according to the Sacco Societies Regulatory Authority (Sasra), by being the largest employer, hold the largest share of unremitted contributions. Public universities lead this lot with Sh958.1 million as per the 2023 industry report.

They are followed by county governments and assemblies with Sh865.1 million, then State corporations (Sh162.9 million), and public sector companies such as water and sewerage companies (Sh79.9 million).

The Sacco Supervision Annual Report notes an increase in the amount of non-remitted deductions, which were owed by public universities and tertiary colleges to regulated saccos in 2022, which amounted to Sh620.52 million.

"The performance and growth of the 10-universities based regulated saccos which draws the bulk of their membership from the public universities and tertiary colleges, thus continue to be undermined as evidenced by a high non-performing loans (NPLs) ratio compared with other government-based clusters of regulated saccos," says the Sasra report.

Private sector companies come third after public universities, county governments and assemblies in unremitted contributions with arrears of Sh377.4 million.

Church-based institutions come sixth with Sh72.5 million in unremitted member contributions. The total unremitted contributions, according to the report, stands at Sh2.6 billion.

According to the law, where an employer of a person who is a member of a co-operative society fails to remit the deductions within seven days after the date upon which the contribution was made, the employer shall be liable to pay the sum deducted together with compound interest thereon at a rate of not less than five per cent for each month.

Collection and recovery

The commissioner can also institute civil debt recovery to get the money.

"The Commissioner may, by written notice, appoint any person, bank or institution to be an agent of the society for the purposes of collection and recovery of a debt owed to the society," reads se

PS Kilemi, during a roundtable with sacco executives to discuss issues around restructuring of Kenya Union of Savings and Credit Co-operatives Ltd (Kuscco), said Cap 490 on co-operative societies gives power to the Commissioner of Co-operative Development to surcharge and take an asset of an employer for the benefit of the members.

"We use that option with caution but keep on engaging," he said. He said this option is difficult to employ among public institutions that depend on exchequer disbursement to run their budgets. "It is a challenge, especially when you look at (public) universities, and they will tell you their claim is with the National Treasury. It is an interlinked ecosystem," he said.

"We keep on using the soft power, reminding them that we have this law that we can apply, but again, the point is it is in the interest of everyone that your remittances are done in good time."

The PS said contributions to saccos should be made on the same day the employee gets paid. Sasra notes that saccos, which draw their membership from employer institutions or those linked to producer organisations, operate on the strength of periodic deductions and remittances from such employer institutions and organisations. These deductions are done either as loan repayment or savings, as instructed by the member.

Non-remittances of contributions have also been linked to the downfall of Kuscco Ltd as the audit report into the Sh13.3 billion fraud shows how the institution accumulated Sh5.3 billion in bad loans.

Some of the loans issued to saccos by Kuscco could not be paid due to the liquidity challenges associated with employer-linked saccos. Nyando Sacco and Sony Sugar Sacco are among them. The audit report by PricewaterhouseCoopers also references the economic and management challenges affecting the sugar industry, which led to the collapse of Sukari Sacco.

It is estimated that saccos hold Sh1.1 billion in unpaid loans extended by Kuscco.

"There are saccos who were given loans of Sh1.1 billion, and they are not servicing. And they are all over the paper advertising how they are doing very well. We have written to them to pay Kuscco.