In Kenya, Savings and Credit Cooperative Societies (Saccos) have long been pillars of financial stability and community support. They offer accessible loans, promote a saving culture, and provide an alternative to traditional banking for millions.
Saccos are deeply trusted institutions, often regarded as safe havens for personal savings and a dependable source for credit during times of need. For many Kenyans, joining a Sacco is a ticket to financial empowerment and a means to achieve life goals, from homeownership to funding education.
However, as with all financial entities, these societies are not immune to risk. They might appear perfectly stable—until they are not.
When Saccos operate smoothly, they serve as powerful vehicles for financial inclusion. Members benefit from better interest rates on loans, lower fees, and a level of customer service that’s difficult to find in the commercial banking sector.
But recent trends and high-profile Sacco failures have highlighted vulnerabilities that can threaten the very trust and security that they are known for.
Many Saccos in Kenya are solidly managed, but systemic weaknesses exist, and when overlooked, they can expose members to significant financial risks.
To safeguard your hard-earned savings, it’s crucial to understand the potential risks and know how to assess a Sacco’s financial health.
Governance and management
A Sacco’s strength begins with its governance. Saccos are cooperatively owned, which means members have a say in how they are run. However, not all cooperatives are governed with the same level of expertise, transparency, or accountability.
Some societies are managed by people with limited experience in finance or insufficient training in risk management, and they may lack the skills needed to steer a large financial institution.
The involvement of unqualified or corrupt officials can have dire consequences. Cases of mismanagement, fraud, and embezzlement are not unheard of, and in such situations, members often find themselves with little recourse.
Poor governance can lead to lax lending practices, where loans are given out to risky borrowers or to insiders without due process. This lack of discipline can drain a Sacco’s resources, leading to insolvency and, ultimately, the loss of members’ savings.
Cooperatives that make high-risk investments or lend too generously without sufficient guarantees are particularly vulnerable.
Regulation and oversight
In Kenya, Saccos are regulated by the Sacco Societies Regulatory Authority (SASRA), which oversees deposit-taking Saccos. However, not all Saccos fall under SASRA’s purview, particularly smaller or non-deposit-taking SACCOs. This regulatory gap leaves some Saccos without adequate oversight, which can be a recipe for disaster.
While SASRA has helped improve transparency and financial discipline among Saccos under its jurisdiction, non-regulated Saccos operate with minimal external oversight, which raises risks for members.
SASRA-licensed Saccos must adhere to strict rules on liquidity, capital adequacy, and regular reporting, but without these requirements, smaller ones may engage in practices that put members’ funds at risk.
If a Sacco you’re considering is not SASRA-regulated, you might be leaving your savings exposed to less scrupulous practices.
Financial health indicators
Just as you would evaluate a bank’s health before opening an account, it’s important to assess a Sacco’s financial health. Key indicators include its capital adequacy, liquidity, loan portfolio quality, and profitability.
A Sacco should have sufficient capital to absorb unexpected losses, maintain high liquidity to handle member withdrawals, and a low level of non-performing loans.
Liquidity, in particular, is essential. Saccos operate on a cooperative model where members’ deposits are used to lend to other members. But if too many members withdraw their savings simultaneously, a Sacco can face liquidity problems, which can quickly escalate into a full-blown crisis. High non-performing loans (NPLs) can indicate that a Sacco’s lending policies are too lenient, and a high NPL ratio is a red flag for potential solvency issues.
When joining a Sacco, ask for its annual financial reports and look closely at these metrics. If a society is hesitant to share financial details, this could be a sign that something is amiss. Transparency is a hallmark of a well-run Sacco, and members have a right to understand the organisation’s financial health.
Diversification of investments
A prudent Sacco will have a diversified portfolio of investments to avoid over-reliance on any single source of revenue. Unfortunately, some Saccos may invest heavily in speculative ventures, real estate projects, or unsecured loans to individuals or small businesses. While these investments may generate higher returns, they also come with higher risks.
A downturn in the property market, for instance, could result in significant losses for Saccos with a heavy concentration in real estate.
Moreover, cooperatives sometimes invest in projects with delayed or uncertain returns, which can strain their cash flow and affect their ability to meet withdrawal requests. If your Sacco has significant investments in risky or illiquid assets, it could face challenges in the event of an economic downturn or a spike in member withdrawals.
Ideally, Saccos should have a balanced portfolio that includes stable, low-risk investments to ensure steady returns and liquidity.
YOU MAY ALSO READ:
7 Key principles for effective leadership in cooperative societies (saccos)
Member awareness and engagement
The cooperative model of Saccos places a lot of power in the hands of members, who are both the owners and customers. Unfortunately, many Sacco members do not actively participate in the governance process or keep themselves informed about the Sacco’s performance. This can lead to a lack of accountability and complacency within Sacco leadership.
Engaged members who attend annual general meetings, vote on key decisions, and demand transparency from Sacco leadership are critical to keeping management accountable.
In cases where Sacco leaders are acting without proper oversight, a passive membership can allow mismanagement to go unchecked, sometimes until it’s too late.
By staying informed, asking questions, and participating in cooperative governance, members can contribute to the overall health and stability of their society.
Taking precautions to protect your savings
While Saccos play a vital role in Kenya’s financial ecosystem, it’s essential for members to remember that no financial institution is without risk. Saccos can be stable and beneficial until weaknesses within their management, regulatory oversight, or financial practices come to light. Therefore, it’s up to each member to conduct due diligence, understand the risks, and stay engaged.
If you are considering joining a Sacco or if you are already a member, take time to assess its governance, review its financial reports, and inquire about its regulatory status.
Your Sacco might be just fine today, but only through vigilance and informed participation can you help ensure it remains so, safeguarding not only your savings but the future of your entire cooperative community.
By David Kipkorir
Get more stories from our website: Sacco Review.
For comments and clarifications, write to: Saccoreview@
Kindly follow us via our social media pages on Facebook: Sacco Review Newspaper for timely updates
Stay ahead of the pack! Grab the latest Sacco Review newspaper!
