- The Co-operative Tribunal has ordered KUSCCO to refund nearly Ksh489 million to Mhasibu DT Sacco over a matured fixed deposit and savings account.
- The tribunal ruled that KUSCCO must honour its contractual obligations despite its financial challenges and restructuring.
- The decision could influence similar recovery claims by other Saccos seeking to recover funds tied up at KUSCCO.
The Kenya Union of Savings and Credit Co-operatives (KUSCCO) has been ordered to refund about Ksh489 million to Mhasibu DT Sacco after the Co-operative Tribunal ruled that the umbrella body must honour a matured fixed deposit agreement.
The ruling adds to mounting pressure on KUSCCO, which is grappling with multiple lawsuits, ongoing criminal investigations and sweeping institutional reforms following the exposure of one of Kenya’s largest financial scandals.
Tribunal rejects financial distress defence
According to the tribunal, KUSCCO remains legally bound to honour the fixed deposit agreement despite its financial difficulties and ongoing restructuring. The decision reinforces a key principle: institutions entrusted with members’ funds must meet their contractual obligations regardless of liquidity challenges.
The dispute arose after Mhasibu DT Sacco invested funds with KUSCCO in July 2023 under a fixed deposit arrangement that attracted an annual interest rate of 13.5 per cent. The investment matured in January 2024, but KUSCCO failed to release the funds despite repeated requests from the Sacco.
By the time the matter was determined, the amount due, including accrued interest, had risen to more than Ksh480 million. Mhasibu DT Sacco also sought the release of over Ksh11 million held in its Jungu Kuu savings account, bringing the total award to nearly Ksh489 million.
A case rooted in the previous management’s tenure
It is important to note that the conduct at the centre of this dispute, and of the wider scandal, took place under KUSCCO’s former leadership. The Ksh13.3 billion fraud was uncovered through a forensic audit that flagged illegal withdrawals, unauthorised transfers and unsupported executive loans, some processed using the signature of a deceased official.
At least 23 senior staff were implicated and legal action has since been taken against several former officials, who are no longer in office. None of the current interim leadership has been named in connection with the scandal.
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During the proceedings, KUSCCO admitted that it owed the money but argued that repayment had been delayed by severe financial challenges affecting its operations over the past two years. However, the tribunal dismissed this defence, ruling that financial distress could not override legally binding contractual obligations.
Wider implications for the Sacco sector
This landmark judgment is expected to influence several similar recovery claims by Saccos whose investments remain locked up at KUSCCO. Because of this, legal experts say the ruling may encourage more cooperative societies to pursue compensation through the tribunal as they seek to recover billions of shillings tied up in the organisation.
The KUSCCO crisis has attracted widespread attention due to the central role Saccos play in Kenya’s economy. Saccos mobilise savings from millions of members while providing affordable credit to households, farmers, professionals and small businesses, making the sector a key driver of financial inclusion and economic growth.
Following a forensic audit that uncovered widespread governance failures and suspected financial misconduct at KUSCCO, the Ministry of Co-operatives and MSMEs Development appointed an interim board to oversee reforms.
Meanwhile, the Sacco Societies Regulatory Authority (SASRA) has advised deposit-taking Saccos to strengthen governance, diversify investments and improve risk management to better safeguard members’ savings.
Criminal investigations into the KUSCCO scandal also continue, with former officials facing court proceedings over alleged financial misconduct linked to billions of shillings in losses.
A win for Mhasibu, another blow for KUSCCO
For Mhasibu DT Sacco, the ruling represents a major victory in its effort to recover members’ funds. For KUSCCO, however, it adds another substantial financial obligation as it works to restore liquidity, rebuild public confidence and reassure member institutions about the safety of their investments.
The decision also sets an important precedent: contractual commitments to depositors must be honoured, regardless of an institution’s financial position.
By Bernard Magada
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