The Central Bank of Kenya (CBK) plans to put in an estimated Ksh 180 million into a Deposit Guarantee Fund (DPF), designed to provide a financial safety net for individuals and corporate entities that hold huge deposits in Deposit-Taking Savings and Credit Cooperative Societies (SACCOs).
This yet-to-be-established fund is part of the latest reforms in the SACCO business as contained in proposals approved by a recent Cabinet meeting, which gave a nod to parliament to amend the relevant SACCO laws to enable this to happen.
According to the Cabinet brief, this CBK’s cash will provide capitalization to the fund for the first four years of its operation.
This Deposit Guarantee Fund will be managed by a Board of Trustees with oversight provided by the SACCO Societies Regulatory Authority (SASRA). These trustees will be made up of the chair and CEO of SASRA, the Principal Secretary at the National Treasury, the CBK Governor, Commissioner for Co-operatives and four members nominated by SACCOs and appointed by the Treasury CS.
“The presence of a deposit guarantee fund will have the effect of boosting the confidence levels of those who have deposited their money in the SACCO. The overall effect on the industry can be compared to a situation where a passenger is traveling in a matatu that has accident insurance coverage. This particular passenger will feel more comfortable and less vulnerable, said Mr. Daniel Marete, outgoing Chief Executive Officer, Solution DT Sacco, based in Meru County.
He told SACCO Review that at present, members who lose their cash in a collapsed SACCO receive no compensation and have to wait for a lengthy liquidation process, which could take years in court, before any claims are settled.
This latest attempt to set up a compensation fund for SACCO depositors comes at a time when various financial cooperatives that put their deposits in the insolvent Kenya Union of Savings and Credit Cooperatives Union (KUSCCO) are making huge provisions in their books so as to cover for lost KUSCCO deposits.
“What the Deposit Guarantee Fund is bringing on board is boosting the confidence levels of SACCO members. This will provide an insurance cover, similar to the arrangement that is enjoyed by those who put their deposits with commercial banks. Financial cooperatives have since grown in size and are playing in a larger space; hence the need for a deposit guarantee fund to cover the risks involved. Appointment of a liquidator to undertake this process is one that is undertaken by the Commissioner for Cooperative Development,” said David Mategwa, National Chairman of the Board, Kenya National Police DT SACCO Limited.
While the SACCO industry has welcomed moves to create a compensation fund for those who lose their cash in collapsed SACCOs, there are those who feel that setting up this safety net is not the only pill to cure the problems in SACCOs.
“We are wondering what will happen if a SACCO that contributes to this fund does not experience any problems. This is because we will be contributing to the fund, and this could affect the cash flow of smaller players like us. I think what the authorities should be concentrating on is addressing the causes of poor governance as well as strict supervision of the sub-sector. Setting up this fund could only encourage those unscrupulous people put in charge of SACCO deposits to mess up, knowing only too well that those members who lose their deposits will be compensated, “said Evelyn Moraa, Chief Executive Officer, Sotico DT Sacco Limited.
She added that the integrity of those put in charge of the fund, which includes the regulator, should be beyond reproach. “This board of trustees should have a wider mandate beyond collecting money from SACCOs,” said Moraa.
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Moraa said SACCOs still experience enormous governance challenges, and this is where the main focus should be put. “If the control system is weak, SACCOs will still lose money to corrupt individuals, who will manipulate the legal system to protect their ill-gotten wealth,” said Moraa.
The SACCO Act Section 55 provides for the establishment of a Deposit Guarantee Fund for the SACCO sector to provide compensation for loss of members’ deposits but not shares up to KSh 100,000 in the event the Society collapses.
This amount will be the total account balance minus any liability that a member owes the SACCO and will be treated as a protected deposit.
A member’s deposits will settle any liabilities owed by the Sacco Society under liquidation, including any liability under a loan guarantee by such a member. Those who lose their deposits in a collapsed SACCO but also have unpaid loans will have these claims settled before they are compensated.
Those who lose their deposits will lodge claims with SASRA, similar to those who seek refunds from a collapsed bank, who have to make claims through the monetary authority.
By Jackson Okoth
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