Not all Sacco contributions are shares

By Fred Sitati

The treatment of member’s shares in Saccos has remained both contentious and emotive because of limited understanding of how members’ shares should be treated upon cessation of membership.

That not only confuses ordinary members but also some of their leaders including those engaged in Sacco education and training.

It will be recalled that it was not until Parliament enacted the Cooperative Societies Act No.12 of 1997 (Amended 2004) (Cap 490) that the twin-terms of “Shares” and “Deposits” were defined as they apply to cooperatives generally.

Prior to 1997, all member contributions to Saccos were wrongly classified as “Shares” and the distinction has not been fully understood by many, including trainers.

You are likely to hear some of the trainers emphasize the following statement without any elaboration: “The law says members shares cannot be refunded but are only transferable”.

While this statement is correct, it is important to appreciate why this is so.

Legally, registered Saccos are distinct and separate from those who form them (ie members).They are legal persons or body corporates with all the attributes that go with such status.

Therefore, one basic requirement for membership of any Sacco (or any other cooperatives) is that one needs to purchase at least the minimum shares as contained in the registered bylaws.

That constitutes the Sacco’s main source of funds to enable it undertake its lawful objects in a businesslike manner .

Sec. 15 of the said CSA caps the maximum shares owned by a single member at one-fifth or 20% of the total shareholding of any primary cooperative society at any given time.

These shares represent “co-ownership” by the individual members and by and large, these are  members long term  investments that should earn them returns by way of “dividends” annually depending on the business  performance of the Sacco.

Sec.45 of the CSA provides the various investment options into which cooperatives can invest funds but those are by no means final and conclusive since that law is long overdue for review to reflect and align it with the progressive 2010 Constitution and new Nornal in terms of available investment avenues.

One key feature of Sacco shares, however, is that they are “ring fenced” meaning a withdrawing member can only transfer their shares  to the already existing member on payment of transfer fees as provided for in the bylaws.

Deposits, on the other hand, are refundable upon serving the Sacco the requisite Notice as stated in the respective Sacco bylaws

With the above in mind, let me attempt to respond to Frequently Asked Questions (FAQs) on Sacco shares specifically.

How should shares of a withdrawing member be treated?

Since shares are ring fenced (and invested by the Sacco) a member wishing to withdraw from membership (after giving due notice) can only transfer their shares to any member within the membership.

In other words, unless and until such a member has got a buyer of his shares, he still remains a member of the Sacco albeit a “Dormant” one!

Being a member, they can attend and participate in general meetings (as shareholders/members) though they may not enjoy “Interest on Deposits” which is based  on one’s “patronage” namely, making regular deposit contributions.

Secondly, can such persons access Sacco services?

Yes and No.

“Yes, because they are shareholders so they should enjoy all services for example attendance and participation in general meetings and members’ education meetings.

And No because  such persons cannot patronize Sacco products like  accessing loan products which are based  on one’s engagement with the Sacco by way of making deposits to entitle them to loan products.

The third question is can such persons attend and participate in duly convened general meetings?

Why not! Again, unless and until one has transferred their shares, they are still members though dormant in terms of patronage.

Then, how do you treat shares of deceased members?

Sec 39 of the CSA is very elaborate on how shares of a deceased member are transferred to their nominees.

The other question is can one transfer their shares to a non-member?

No. Cooperatives exclusively serve their members (save for those licenced under the SSA (Cap 490B) despite there being talk about creating a  common platform for trading cooperative shares in future .

I have a problem with this school of thought as it would surely undermine the Identity of cooperatives which are member-based, member-owned and member-controlled enterprises.

And what benefits accrue to dormant Sacco members like those who have ceased to be regular depositors yet their shares are still held in their Saccos?

Such people are entitled to payment of annual dividends until such time they will transfer their shares to other members.

However, my observation is that not many Sacco members are good shareholders.

In most cases, the Deposit Taking Saccos literally push Saccos under their jurisdiction to enhance the share capital to meet the legal thresholds.

While this is done progressively, most members don’t do so freely and willingly.

In fact given the option, Sacco members would be more than happy to only hold the minimum shares and instead invest all their money in deposits.

Going forward therefore, and in light of the covid-19 experience, special attention should be paid to increase of shares by cooperatives including Saccos as one way of strengthening the cooperatives’ share capital bases.

That builds their resilience and becomes a source of long term investment for the members which is a source of passive income as they enter their sunset years.

There should be deliberate measures made to enhance diversification of economic activities by all cooperatives to cushion members in unexpected occurrences like the pandemic.

Remember, majority of sacco members remain net borrowers rather than net savers hence highly vulnerable!

Presently, many cooperatives are built on quick sand because they are very poorly capitalised.

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