How State plans to tame rogue cooperative societies

Cooperative societies across the country are set to undergo inspection and have their officials trained on ethics as the government moves in to sanitise the sector, which it says is marred with weak governance structures.

The exercise is one of the key performance indicators for the Ministry of Cooperatives and Micro, Small and Medium Enterprises (MSMEs) this financial year as agreed with the Office of the President.

The training will also rope in county officials across the 47 devolved units and the relevant agencies, among them the Ethics and Anti-Corruption Commission (EACC) where the relevant Acts will be disseminated.

Deputy Chief of Staff, Performance and Delivery Management in the Office of the President Eliud Owalo, cited weak governance as a perennial problem in the cooperative sector.

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“This will be realised through specific interventions which include dissemination of the code of conduct and ethics to cooperative societies so that all stakeholders within the sector get to know the dos and don’ts,” said Mr Owalo.

This was after a meeting on the performance contract team with Cabinet Secretary Ministry of Cooperatives and Micro, Small and Medium Enterprises (MSMEs) Wycliffe Oparanya.

Performance contract

He said this will ensure the sector has an ethical framework and enabling culture within the cooperative sector that will support the realisation of the set goals and objectives of the performance contract.

“The ministry will also conduct inspection periodically in cooperative societies as a prerequisite for inquiries,” he said.

These inspections will also involve digital cooperatives that largely serve the diaspora market. “The ministry will undertake training of cooperative officials on issues of integrity ethics and governance framework,” he stated.

Barichu Farmers’ Cooperative Society and the Kenya Union of Savings and Credit Cooperatives (Kuscco) are the entities whose financial ills have come to light with their management being shown the door.

Barichu Farmers’ Cooperative Society board and chief executive were ordered out of office by CS Oparanya on September 10, 2024, due to allegations of mismanagement of funds as the Directorate of Criminal Investigations (DCI) and EACC were asked to take over the matter.

Kuscco’s board was disbanded in May due to allegations of Sh5 billion fraud involving top management that spanned over a decade.

It is against the backdrop of such incidents that the government, through the ministry, resolved to review the Sacco Societies Act and introduced The Cooperatives Bill, 2024, to tame the insatiable appetite of cooperatives managers for members’ savings.

Principal Secretary of the State Department for Co-operatives Patrick Kilemi, while speaking at the rebranding of Safaricom Investment Cooperative to SIC, detailed some of these regulatory changes that will streamline the sector.

The PS called on industry leaders to assist the government in formulating a regulatory framework to help sanitise the sector.

This is as he pointed out that bad habits in the cooperative movement tend to grow when they (market leaders) do not speak up.

Clear separation

He said in The Cooperatives Bill, 2024, the ministry has proposed a clear separation between Saccos, transport Saccos, cooperatives, and investment.

“In fact, in your sector (SIC Investment Cooperative), we are proposing that it will be called savings and investment cooperatives,” he said. “You will be a Sico, not a Sacco.”

He added: “The matatus you see all of them written Saccos, they will be transcoop (transport cooperatives) so that there is clear demarcation.”

Additionally, an amendment to the Sacco Societies Act will include Sicos (savings and investment cooperatives) under their ambit.

“In the era of quantum computing, artificial intelligence, and creative accounting, we know audited books are just not enough. Help us we develop a proper regulation framework for Sicos so that we can assure these people, your members, that their shilling is as safe as being in the bank,” he said.

The PS noted that the perennial bad habits in the cooperative sector are the reason why Kenyans have more trust in banks.

He referenced official data that showed Kenyans have close to Sh2 trillion in fixed deposits held in commercial banks as of June 2024.

“That is a big number if it is given to saving and investment cooperatives. There is a reason why people trust banks, but we need to earn the trust of the people who have this money,” he said.

Cabinet Secretary Ministry of Cooperatives and Micro, Small and Medium Enterprises (MSMEs) Wycliffe Oparanya referenced The Cooperatives Bill, 2024, and the amendment to the Sacco Societies Act as some of the steps the government is taking to not only streamline the cooperative sector but also align it to the Bottom-up Economic Transformation Agenda (BETA).

“These legislative interventions are meant to cure some of the evils bedevilling the cooperative sector, key among them governance,” he said.

He said that the sector has been marred with lots of weaknesses, especially governance.

“But Saccos have done better than cooperatives, especially in the agricultural sector. That is why I have emphasized here that as the government, we must make sure funds belonging to members in any cooperative are safe as they are in the bank,” he said.

“Because if you wake up in the morning and go to the bank, you are sure you will get the money. We also want the cooperatives, when you go to their office, you will be sure of getting a loan, and when you retire, you will be refunded your savings.”

He said President William Ruto’s administration has emphasized cooperatives as a key tool to help in achieving the development agenda and formalising the informal sector.

The CS said the government is also mobilising the cooperative players into a conversation towards improving management and efficiency in the sector, bearing in mind the recent cases of mismanagement that have led to the embezzlement of members’ funds.

“The government is also harmonising various legal and regulatory frameworks and realigning them to the current needs and realities as envisioned in the BETA so that it can ensure we have a well-governed and sustainable cooperative society ecosystem that can protest the interest of all members,” he said.

According to figures shared by the CS, Kenya has about 25,000 registered cooperatives with 14 million members. These institutions also contribute 30 per cent of Kenyan’s annual savings.

“This underscores the cooperatives movement’s continued significant role in transforming the financial capabilities of many Kenyans by helping them and creating wealth through various savings and investment opportunities,” he said.