- Xavier Lugaga urges members to prioritise long term wealth over short term spending.
- He says statutory reserves are key to strong and resilient Saccos.
- Lugaga calls on members to protect cooperative wealth for future generations
There is a powerful biblical warning that should resonate deeply with every member of Kenya’s cooperative movement: do not sell your birthright for a plate of food.
In the Sacco movement, that warning is more than a religious metaphor. It is a lesson about patience, ownership, financial discipline and the danger of sacrificing long-term institutional wealth for short-term gratification.
One of the most important principles in cooperative finance is the requirement to maintain a statutory reserve. The reserve is not the personal property of an individual member. It is part of the collective financial strength of the cooperative, built over time to provide stability and resilience.
That is why members must understand that when they eventually leave a Sacco and transfer their shares, they should not expect the statutory reserve accumulated by the society to simply follow them as individual cash.
And therein lies the tragedy of a cooperative member who regards share capital merely as money locked away waiting to be reclaimed.
Kenya has witnessed the collapse, distress or weakening of cooperative societies for many different reasons, including poor governance, mismanagement, fraud, weak internal controls, inadequate liquidity and failure to comply with regulatory and prudential requirements.
It would, however, be misleading to claim that all such failures were caused specifically by failure to maintain the 20 per cent statutory reserve. The reserve is one component of sound cooperative financial management, not a magic shield against every form of institutional failure.
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A statutory reserve provides a cooperative with an important financial cushion. When societies treat mandatory reserves as an inconvenience, or fail to maintain them properly, they weaken the institution’s capacity to absorb shocks and protect members’ collective interests.
The law may make the reserve mandatory, but compliance must become more than a box-ticking exercise. It must become a cooperative culture. This is where the responsibility of boards, management, supervisory committees, regulators and members becomes critical.
A Sacco cannot build a strong financial foundation if members demand everything today and leave nothing for tomorrow.
A cooperative cannot become financially resilient if every surplus is viewed as money to be distributed immediately.
And an institution cannot survive generations if its members think only about what they can personally withdraw.
The cooperative philosophy is fundamentally different. It is about collective ownership and collective responsibility.
This is why I find it difficult to understand the argument often made by members who say they cannot increase their shares beyond the minimum because shares are not refundable like deposits.
The question should perhaps be reversed. Why are we so eager to have our share capital refunded? If you have spent twenty or thirty years building ownership in a cooperative, why should the first question be how quickly you can recover it? Why not ask what that ownership can help build? Why not think of share capital as part of your long-term financial legacy?
Why not build your shareholding as though you are building wealth for generations? That is the mindset Kenya’s cooperative movement needs. A Sacco member should distinguish between savings and ownership.
Savings are generally accumulated for future use. Share capital, on the other hand, represents ownership in the cooperative and forms part of the society’s capital base. Members therefore need to appreciate that the two serve different purposes.
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The temptation to transfer shares arises when a member sees the accumulated amount as easy cash. But before taking that money, there is one question every member should ask: Where will this money go? Will it be invested? Will it generate another income stream? Will it buy an asset that appreciates? Will it finance an enterprise? Will it improve the family’s financial position?
Or will it simply pay for food, entertainment, household consumption or other expenses that will disappear almost as quickly as the money arrives?
That is the danger of the plate of food. The plate may satisfy today’s hunger, but the birthright may have represented generations of opportunity. The same principle applies to cooperative societies.
A strong Sacco is not created overnight. It is built by thousands of members making small sacrifices consistently over many years. It is built through share capital, prudent lending, responsible borrowing, proper governance, sound investment, reserves and disciplined management. When these foundations are ignored, the consequences can be devastating.
We have seen cooperative institutions get into trouble because of governance failures, financial mismanagement, insider dealings, weak controls and poor compliance. In such circumstances, the ordinary member is often the person who suffers most.
The member who faithfully contributed for decades may discover that institutional weaknesses have destroyed what generations of cooperative effort had created.
That is why statutory reserves matter. They are not simply figures appearing in an annual financial statement. They are part of the protective architecture of the cooperative.
And when the law requires societies to maintain them, compliance should not be treated as an option.
Do not demand that your Sacco behave like a personal bank account. You are not merely a customer. You are an owner.
As an owner, you have responsibilities alongside your rights. You have a responsibility to protect the institution. You have a responsibility to elect competent leaders. You have a responsibility to scrutinise financial statements.
You have a responsibility to ask questions at Annual General Meetings. You have a responsibility to oppose reckless decisions. And you have a responsibility to think beyond your own immediate financial needs. This is particularly important for members of Shirika Sacco.
Those of us who have served in or studied the cooperative movement for many years understand the importance of institutional stability, competent leadership and sound management. Where members have confidence in the leadership and financial direction of their Sacco, they should consider their shares as part of a long-term ownership relationship rather than simply money waiting to be withdrawn.
That does not mean that a member should never transfer shares. There can be legitimate personal, financial and membership reasons for doing so. But such a decision should be made after understanding the consequences and considering alternative investment options.
The fundamental question is whether the money being released from the cooperative will create more wealth or merely more consumption. Kenya’s cooperative movement was built by people who understood sacrifice.
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Our parents and grandparents contributed small amounts regularly because they understood that collective action could produce something much bigger than individual effort. They were not necessarily looking for instant gratification. They were building institutions. They were building financial security. They were building opportunities for their children. They were building a future. That spirit must not be lost.
The statutory reserve, share capital and other institutional safeguards should therefore be understood within the broader philosophy of cooperative ownership.
A cooperative society should be stronger because of every generation that passes through it — not weaker.
So, before transferring your shares, stop and think. Calculate what you have built. Understand what you may be giving up. Ask where the money will go. Seek professional advice where necessary.
And ask yourself whether you are exchanging a long-term financial asset for a short-term pleasure.
Because sometimes the poorest financial decision is the one that puts the most cash into your hands today.
And sometimes the richest decision is the one that leaves an institution stronger for your children and grandchildren tomorrow.
Do not sell your birthright for a plate of food. Build your shares. Build your Sacco. Respect the statutory reserve. Demand accountability. Protect cooperative institutions. And above all, build wealth that does not end with you.
That is how a member stops being merely a consumer of cooperative services and becomes what the cooperative movement intended from the beginning: An owner, a builder and a custodian of collective wealth.
By Xavier Lugaga
Cooperative Affairs Commentator
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