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Kenya is working on new rules to tame deposit-taking SACCOs (DT-SACCOs) that fleece members through inflated charges, delays in reimbursement of deposits, and “reckless” lending and debt collection.

This comes amid concerns over mismanagement, fraud and bad loans that are putting the stability of the DT-SACCO subsector at risk.

The EastAfrican has learnt that the SACCOs Sector Regulatory Authority (Sasra), in collaboration with the National Treasury, has hired a consultant to come up with new market conduct regulations. The move is part of the government’s efforts to restore sanity in a sector that controls over $5 billion in members’ savings.

Sasra, with funding from the National Treasury’s Financial Sector Support Project, has appointed industry expert Gianfranco Vento to develop the market conduct policy as well as legal and regulatory framework for SACCO societies in Kenya.

Through a circular to the chief executives of DT-SACCOs, seen by The EastAfrican, the industry regulator said the existing regulatory framework governing the operations of DT-Saccos is inadequate and has left customers exposed to market abuse.

“Lack of adequate emphasis on market conduct regulations has amplified challenges relating to low savings and over-indebtedness, and undermines steps taken to make the DT SACCO subsector more accessible to improve financial inclusion,” said John Mwaka, Sasra’s chief executive.

According to Mr Mwaka, some of the malpractices prevalent in the subsector are high fees and incomprehensible charges, delay in reimbursement of member deposits upon expiry of the mandatory 60-day notice requirement, and reckless lending often paired with disgraceful debt collection practices.

REGULATION

Although the SACCO Societies Act (Cap 490B) has some elements that cover market conduct regulations, such as product disclosures, suitability of persons managing DT-SACCOs and conflict of interest, Sasra says these regulations cannot deal with market abuse.

“Market conduct regulation is oversight that focuses on regulated entities’ compliance with laws and regulations related to the financial service provider’s pattern of behaviour in executing its pricing and promotion strategy, and its responses to the realities of the market it serves,” said Mr Mwaka.

In 2017, DT-SACCOs loan-loss provisions increased by 23.4 per cent to Ksh10.7 billion ($107 million), from Ksh8.6 billion ($86 million), because of an increase in non-performing loans. In addition, the number of DT Saccos that hold over Ksh305 billion ($3.05 billion) of customer deposits declined to 174 from 176 in 2016, when two institutions failed to meet their financial obligations, leading to revocation of their licenses.

Sasra also rejected five applications out of seven that were either pending at the beginning of 2017 or received in the course of 2017, after the institutions failed to meet the minimum licensing requirements.

Five other Saccos operated on restricted licences in 2017 even though they had been issued with conditionally restricted licences in 2016.

According to Sasra’s annual report for 2017, Kenya’s DT-SACCOs manage over Ksh442 billion ($4.42 billion) of assets, and microfinance institutions control an estimated Ksh73 billion ($730 million.) Commercial banks have the lion’s share, estimated at Ksh4 trillion ($40 billion).

Although DT-Saccos collect deposits from the public, they do not hold reserve accounts at the Central Bank or operate in the automated clearing house owned by banks.

Sammy Rutto, a director at Sasra, said growth of the DT-SACCOs could slow down due to the absence of a deposit insurance facility and the Sacco’s non-participation in the national payments system. (Source / the EastAfrican)

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Co-operatives and social enterprises achieve employment growth at least on a par with other types of organisation, and also create good quality jobs, according to a new report by the University of Warwick, the Fondazione Giacomo Brodolini (FGB), and Eurofound.

The research team examined co-operatives’ and social enterprises’ resilience to economic changes. Based on new research, their report highlights how the management practices of these organisations helps sustain employment levels and deliver good jobs in the face of structural and cyclical economic changes.

Focusing on twenty case study organisations across five EU countries, including the UK, Peter Dickinson and Chris Warhurst in the University of Warwick’s Institute of Employment Research, Luigi Corvo and Feliciano Iudicone at Fondazione Giacomo Brodolini (FGB) and Stavroula Demetriades of Eurofound investigated the contribution of European co-operatives and social enterprises to job creation and retention; mapped the levels of public or social partner support for job creation in these organisations; and suggested ways to better support co-operatives and social enterprises so that they can continue to create and sustain good jobs.

The researchers found:

• Co-operatives and social enterprises proved resilient to the financial crisis and have been successful in maintaining and creating jobs. Social co-operatives in particular have flourished.
• Workers in co-operatives and social enterprises rate their job quality as high, both in absolute and relative terms.
• Management skills are a key driver of employment success.
• Managers in co-operatives and social enterprises tend to access informal support through their own networks rather than access formal support measures offered by governments.
• Governments could support co-operatives and social enterprises by promoting social value clauses in public tendering rather than lowest cost

Peter Dickinson, from the University of Warwick, commented: “The challenge for UK and other European economies since the financial crisis is not just how to create jobs, but—in the era of zero hour contracts, the gig economy and flexible labour markets—how to achieve growth in good jobs.

“This study concludes that not only can cooperatives and social enterprises achieve employment growth at least on a par with other types of organisation, they create good quality jobs. They do this through inclusive management; reinvesting and sharing economic value; shared values; and prioritising jobs not just wages and profit.”

The UK has one of the largest social enterprise sectors in the EU, contributing around €61.6bn to the UK economy. Compared to other EU countries, the UK has a smaller number of co-operatives but a higher per capita membership, with 23 percent of the UK population in membership. This is second only to Sweden where 45 percent of the population belongs to a co-op. 32 percent of UK co-operatives are found in the health and social care sector, 10 percent are in housing, 9 percent are in retail and 8 percent are in finance.(source/PhysOrg)

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