Insider loans are emerging as a growing threat to the stability of co-operatives, with recent disclosures showing how senior officials in some savings societies have borrowed heavily against member funds and later defaulted, exposing governance gaps and weak credit risk controls.
The concern is now gaining urgency across the sector as new audit findings and supervisory reports point to a pattern where insiders, inlcuding board members, executives and senior staff, access large unsecured or poorly structured loans that later become difficult to recover.
A recent supervisory committee report from Airports Sacco has brought the issue into focus, revealing that former top officials of the institution, including the chief executive officer, chairman and treasurer, borrowed a combined Ksh49.96 million and have failed to repay the loans.
The sacco, whose membership is largely drawn from Kenya Airports Authority (KAA) employees, has made little progress in recovering the money. For the year ended December 2025, no recoveries had been made from the former officials, despite sustained efforts.
The former CEO alone defaulted on Ksh26.96 million, followed by the former treasurer at Sh9.36 million and the former chairman at Ksh2.44 million. Other former staff account for an additional Sh11.21 million in unpaid loans.
“The loans remain largely unrecovered and continue to pose a significant credit risk to the society,” the report states.
Further, the report warns that prolonged delays in recovery expose the sacco to “significant financial loss and erosion of members’ funds.”
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The committee has since recommended escalating the matter to the Co-operative Tribunal, alongside exploring additional legal recovery mechanisms. It also wants management to provide members with periodic updates on progress, reflecting growing pressure for transparency and accountability.
The disclosures highlight a governance weakness where officials influence or benefit from credit decisions without adequate safeguards. In some cases, loans are issued beyond the borrowers’ repayment capacity or structured to extend beyond their tenure in office or even retirement age.
Under the Sacco Societies Act, Saccos are allowed to lend to employees and board members on condition that they are treated like ordinary members in terms of credit terms. However, the law strictly prohibits insiders from participating in approval decisions or acting as guarantors for loans within their own institutions.
“No director, officer, employee or a member of the board of a Sacco Society shall act as a guarantor of any person with respect to a loan advanced or credit facility granted to a person by that society,” the Act states.
Sacco Societies Regulatory Authority (SASRA) says insider lending reports form part of the non-periodic returns and reports which regulated Saccos are required to submit to the Authority for purposes of off-site surveillance. The report is submitted to Sasra within 14 days after approval or ratification of the loan, followed by monthly reports on the same.
“This helps reduce the risks associated with insider dealing, conflicts of interest in insider lending, and abuse of insider information,” says Sasra.
Despite these safeguards, insider lending has previously been linked to major failures in the sector. A similar pattern played out at Kenya Union of Savings and Credit Co-operatives (KUSCCO).
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Insider loans to senior officials formed part of a wider financial scandal that left the umbrella body insolvent to the tune of Sh12.5 billion, as was captured by a forensic audit by PricewaterhouseCoopers (PwC).
The KUSCCO scandal exposed how weak oversight and unchecked lending to insiders can escalate into systemic failure. The audit showed that KUSSCO officials tapped and defaulted KUSCCO’s loans worth Ksh489.2 million, with most of the officials breaching the Sacco’s policy that caps loans at up five times the deposits one holds.
For instance, former CEO George Ototo had defaulted on loans worth Ksh93.5 million as at end of 2023 when he held Ksh425,000 as deposits in KUSCCO. He did not pledge any collateral.
In Airports Sacco, current staff have now borrowed Ksh50.04 million, with these loans reported as performing and fully guaranteed. However, the supervisory committee has raised concern that some of these facilities extend beyond the retirement age of borrowers or their contractual employment period, creating a future risk of default once income streams cease.
“The supervisory committee further notes that some insider loan facilities extend beyond the retirement age of certain board members and staff, while others extend beyond the contractual employment period of some borrowers,” the report notes.
It warns that while current performance appears stable, weak alignment between loan tenure and employment lifecycle could trigger a fresh wave of non-performing loans in future.
As scrutiny intensifies, regulators and cooperative leaders are now under pressure to close loopholes that allow insiders to benefit from member funds, often at the expense of the ordinary savers the institutions are meant to protect.
By Sammy Chivanga
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