More Saccos face ban as regulator cracks the whip

By NICHOLAS WAITATHU

More than 65 Savings and Credit Cooperatives (Saccos) risk being barred from carrying out deposit taking business.

This is after the Government put them on notice for not conforming to the rules of the sector.

The Sacco Societies Regulatory Authority (SASRA) Chief Executive Officer Carilus Ademba said that 65 credit unions that are supposed to offer financial services to their members do not satisfy the minimum licensing requirements.

He was speaking during a Sacco leaders’ forum in Nairobi yesterday.

The 65 Saccos are part of 215 Societies, which prior to publication of the regulations had qualified to apply for licenses from the regulator.

Weak systems

 The affected Saccos are  also being accused of failing to raise the minimum core capital of Sh10 million for licensing. Ademba explained the 65 Saccos started Front Office Saving Activity (FOSA) without strong business justification. 

He said increased competition from other Saccos, commercial banks and deposit taking microfinance institutions have only exacerbated their situation. 

The Sacco Societies Act, 2008 required all Sacco Societies conducting deposit taking  business, prior to publication of the deposit taking Sacco business regulations of 2010 to apply for licenses by June 2011. Saccos that were taking deposits before publication of the regulations had reached 215 in number. Of these, only 132 have been licensed by SASRA.

 Ademba observed that 18 Saccos have either been issued with the letters of intent or inspected for licensing while another 65 do not satisfy the minimum licensing requirements.

The Saccos had a four-year transition period ending June 2014 to comply with the regulations.

By the end of the stated period, those Saccos which will have not complied will be blacklisted from conducting deposit taking business and forced to revert to Back Office Service Activity.

“The 132 licensed deposit taking Saccos accounted for over three quarters (76 per cent) of industry assets and deposits,” he said.  “Among the licensed deposit taking Saccos, 51 have assets in excess of Sh1billion and account for 60 per cent of the industry assets and deposits in 2012.”

Ademba explained that the Authority has continually engaged the credit unions including on conducting a due diligence assessment to ascertain the operational and financial viability of these Saccos.

Regulator’s hand

SASRA Chairman John Nthuku disclosed that the regulator will engage  Saccos by assisting them to evaluate their business options and remain afloat in the business.

“We have offered a number of ideas to the affected institutions, for example, merging with licensed deposits taking Saccos and closing their FOSA operations to retain their BOSA business until such time that they satisfy the licensing requirements for FOSA business,” he stated.

He added the affected Saccos will be encouraged to partner with licensed deposit taking Saccos to ensure continuity of FOSA services.

The options he said are inevitable as the regulatory demands and competition piles pressure on small financial institutions.

Such options will allow members to continue accessing financial services competitively, a win-win situation for all.