Sacco bosses face jail terms for paying dividends using bank loans

Cooperatives, Micro Small and Medium-sized Enterprises (MSMEs) Development Cabinet Secretary Wycliffe Oparanya has warned loss-making Savings and Credit Cooperative Societies (Saccos) against taking loans to pay dividends to their members.

Oparanya said Sacco managers will be jailed if they attempt to issue dividends from loans starting next year.

“Dividends have been a main problem facing Saccos. You are going to borrow a loan to pay a dividend at 20 per cent? That is not going to happen. You must stop. If you pay dividends and your Sacco is facing losses, you will go to jail,” warned Oparanya.

He was speaking in Mombasa during the Kenya Union of Savings and Credit Co-operative Society (Kuscco’s) 9th Annual Leaders’ Summit.

The CS noted that the Sacco business is not a charitable organisation, warning that the government will not support the Sacco movement if there is mismanagement.

Mismanagement of funds

He said the credit society sector is a significant player in the financial sector, holding over Sh1 trillion in member deposits, which is a representation of the enormous trust placed in Saccos by members.

Oparanya noted that the recent mismanagement of funds detected at Kuscco is disheartening, noting that a couple had lost Sh11 million from their Sacco because of mismanagement.

He said the government has already involved the relevant agencies to investigate these matters and help recover members’ funds.

“In the coming weeks, the interim board will be convening a special affiliates general meeting to present a report of the forensic audit findings by PriceWaterhouseCoopers Ltd (PwC) and agree on a comprehensive way forward. Indeed, we are committed to being transparent and effectual in this process,” said Oparanya.

The CS said directed that going forward, the ministry will emphasize robust financial oversight by ensuring there are internal controls in place to safeguard members’ funds and restore confidence in the Sacco sector.

Oparanya told Saccos to ensure their books of accounts are audited by qualified, competent and reputable audit firms that have demonstrated the capacity to audit billions of shillings in member savings.

He explained that an audit is not just a compliance exercise but a critical shield that protects the hard-earned savings of millions of Kenyans who trust our Saccos as tools towards achieving their financial goals.

“The Cooperatives Bill 2024 that has been presented in Parliament for the third reading is a game-changer for the cooperative movement as it provides adequate safeguards to protect member deposits and ensure Sacos practice good governance,” said Oparanya.

The CS asked Saccos to take note of emerging technology and cyber security while investing in security protocols to avert any security breaches.

He also said all Saccos must be supervised regardless of the amount they have and that regulation of Saccos cannot be left to Sacco Societies Regulatory Authority (Sasra) alone but should be oversighted by other bodies.

Kuscco Chairman David Mategwa explained that the giant society is under the leadership of an interim board supported by a technical committee appointed in May 2024 to implement a recovery strategy.

Financial inclusion

He said the committee has ensured the registration of a new Secondary Co-operative Society to take over the operations of the Central Finance Fund. “This Secondary Co-operative will be fully licensed and regulated by Sasra,” said Mategwa.

He stated that Kenyan Saccos stand tall, holding over Sh700 billion in deposits and assets, contributing significantly to the nation’s economic fabric and enhancing financial inclusion.

Kuscco Group Managing Director Arnold Munene said the sector’s total assets now stand at Sh71.96 billion, accounting for 6.43 per cent of Kenya’s nominal Gross Domestic Product (GDP).

Munene noted that in 2023 alone, Saccos disbursed Sh460 billion in loans across key sectors, including land and housing, education, agriculture, and Micro, Small, and Medium Enterprises (MSMEs).

“Gross loans increased by 11.5 per cent to Sh758.57 billion, while membership grew by 6.57 per cent to Sh6.84 million. We have also made a significant impact on employment, providing jobs for 11,883 individuals,” said Munene.