Why Saccos operating in digital sphere may still escape regulator’s sight

Sasra Acting Chief Executive Peter Njuguna [File]

At the beginning of 2021, Sacco’s operating in the digital sphere as well as those targeting Kenyans abroad were brought under regulatory oversight.

The two categories of Sacco’s were among those that would be regulated by the Sacco Societies Regulatory Authority (Sasra) as the Sacco Societies Regulations 2020 came into effect in January 2021.

After a six month window the Sacco’s had been given to comply with the provisions of the new subsidiary law, the compliance among the two categories appears dismal.

According to Sasra, it had received 157 applications by June 30 from different Sacco’s.

Out of these, Sasra said, four applied under the diaspora Sacco’s category and one applied under the digital or virtual Sacco’s category. The remaining 152 of the Sacco’s applied under the category of those with deposits of more than Sh100 million.

Sasra noted that in implementing the regulations, it did not have an indication of how many digital or diaspora Sacco’s would lodge applications, This is perhaps an indication of the extent that the two categories of Sacco’s – especially digital Sacco’s – are out of the regulator’s sight.

“When we started this exercise of implementing the regulations 2020, Sasra did not have any expectations on the number of specified Saccos which were to register and come on board or even the categories they would represent, beyond them being non-withdrawable deposit taking Saccos,” said Sasra Chief Executive Peter Njuguna.

According to the Commissioner of Cooperatives, the low level of compliance with the new rules among diaspora and virtual Saccos is in line with the number of such Saccos registered by the Department of Cooperatives.

There are about 19 diaspora Saccos, of which four applied for regulation by Sasra. Geoffrey Jang’ombe, the outgoing Commissioner of Cooperatives said Saccos catering for Kenyans living and working abroad that are yet to make the applications are working with Sasra for compliance.

“We have about 19 diaspora Saccos. Not all may meet the minimal requirements as some are in their very nascent stages so they may not meet the cut yet,” said Jang’ombe, adding: “There could be a slow response from diaspora Saccos but they are being engaged. If they cannot make it, they will inform Sasra and a decision will be made whether they will be exempted or they will convert into something else such as investment cooperatives or something else.”

He added that there are few virtual Saccos registered by the Department of Cooperatives. “We have about three virtual Saccos. They are few and one has applied, this is not a bad percentage,” said Jang’ombe. While only three are registered, there are numerous outfits that market themselves as digital Saccos. Following the coming into force of the regulations, virtual and diaspora Sacco’s have to seek authorisation from Sasra before they commence operations, regardless of their size.

This is unlike the traditional Sacco’s, which according to the regulations will need to be regulated by Sasra if they have deposits of Sh100 million and above.

There have been numerous instances where unscrupulous individuals and businesses have raised funds through online platforms claiming to operate digital Saccos. Their members have, however, found it difficult to borrow or withdraw their funds from the Saccos in instances they want to exit. This is especially so for virtual Saccos where a number have in the recent past mobilised savings from Kenyans who have ended up losing money with the Saccos’ officials disappearing. Due to the limited physical presence, the investors have little options as to where to claim their funds.

Getting digital and diaspora Saccos under Sasra’s oversight seeks to end the rogue nature of some cooperatives largely present online but with little physical presence.

“We will be overseeing any Sacco that starts off on a digital platform… we must authorise them before they take any shilling from any of their members. This is critical for protection of members,” said Njuguna, adding that the Saccos needed oversight even when they are smaller in terms of assets as they do not have the special traits that have traditionally defined Saccos. [Macharia Kamau]

Njuguna added: “There have been a number of Saccos that operate virtually and some have caused a lot of pain to their members. The traditional model is that there is a social bond – communities of professionals – but when you go virtual and there are no such bonds, including where you can physically get the officials, it is difficult for members to ensure governance.”

“The whole idea is to ensure they are properly anchored and their bylaws are clear.”

The 2020 Saccos’ regulations expanded Sasra’s mandate, which has been regulating 175 deposit taking Saccos. The authority’s larger mandate is envisaged it the Sacco Societies Act, whose section three says more Saccos would come under Sasra’s oversight upon issuance of regulations by the CS in charge of Sacco societies.

Agriculture and Cooperatives CS Peter Munya said Sacco’s that require to be regulated by Sasra as per the 2020 regulations and the Sacco Societies Act of 2008 and had not applied would be punished. He told Sasra to up its vigilance on the industry.

“If there are any potential applicants that did not submit their applications, then the law will definitely catch up with you,” said Munya.

Virtual and diaspora Saccos are just a small fraction of the industry. According to the Department of Cooperatives, there are 23,000 registered cooperative societies, which share 14 million members. The cooperatives hold Sh732 billion of member savings, control an asset base of Sh1 trillion and a Sh700 billion loan portfolio.