Cabinet approves plan to protect sacco deposits

The  government plans to tighten laws governing Savings and Credit Cooperative Societies (Saccos), among them setting up a fund to guarantee deposits.

This comes in the wake of a damning forensic audit by PricewaterhouseCoopers (PwC) reported by the Star, laying bare the extent of mismanagement and fraud at the Kenya Union of Savings and Credit Cooperatives (KUSCCO), the umbrella organisation for Saccos in the country.

The cabinet meeting chaired by President William Ruto on Tuesday approved the proposed Saccos Societies (Amendment) Bill, 2023, which aims to modernise financial and technological operations, particularly benefitting smaller Saccos.

“Reforms to the Deposit Guarantee Fund will ensure better protection of Sacco deposits, reduce government bailout risks and strengthen the cooperative financial sector,’’ a statement from the cabinet reads in part.

Underwriting Sacco deposits will see credit unions join the league of banks and insurance firms, which have schemes to compensate depositors and policyholders in the event of the financial institutions’ collapse Kenya has been toying with the idea of protecting Sacco deposits for two years now but did little to enshrine it in the law, leaving over Sh1 trillion of members’ deposits exposed.

Section 55 of the Sacco Societies Act sets the premise for establishing a DGF to protect members’ deposits of up to Sh100,000, excluding shares, if a Sacco collapses due to liquidity challenges or governance.

The Act provides for setting up a deposit insurance fund for credit unions, but the same has never been established since the setting up of the Sacco Societies Regulatory Authority (Sasra) in June 2010.

Kenya Deposit Insurance Corporation compensates savers in banks and deposit-taking micro-financiers up to Sh500,000 upon the collapse of a bank with the rest dependent on what is recovered later on.

The Policyholders Compensation Fund reimburses Sh250,000 per policyholder if an insurance company is declared insolvent.