OPINION: How Saccos should manage risks to ensure financial stability

SACCO Saccos

While Savings and Credit Cooperative Societies (SACCOs) offer a myriad of benefits to members, they are also exposed to a lot of risks and with the progressive development in technology, regulatory demands and members’ needs, new risks are bound to keep cropping up.

Types of risks

There are several types of risks faced by SACCOs depending on the size, operations and even their nationality, considering that different countries impose different regulations.

These risks can be classified as either internal or external, with internal risks being those that are within the control of the SACCO while external risks are those beyond them such as interest rates, liquidity, operations risk, regulations, and credit risks.

They can be further be divided into; legal, financial, operational, environmental, technological and social risks.

This necessitates the need for SACCOs to have sound risk management strategies to manage risks effectively.

Risk management

Risk management involves the identification, evaluation and prioritizing of risks. This helps to minimize, monitor and control the probability or impact of unfortunate events, and to also maximize the realization of opportunities.

Risk Management Strategy

A risk management strategy should be undertaken to reduce the chances and effects of any undesired event. The strategy in place should be documented for reference purposes.

SACCOs should create an Audit Committee (AC) and develop a Risk Management Policy as part of their risk management strategies.

Creation of an audit committee

SACCOs should create an AC to oversee financial reporting and risk management activities. The Audit Committee should be composed of independent directors who are not part of management.

The management should provide the Committee with regular reports on SACCO’s financial condition and risk management activities. The committee should review and approve the SACCO’s financial statements and related disclosures. They should also review their internal control systems and risk management procedures.

The AC should consult with the SACCO’s external auditors regularly who should in turn report directly to the AC rather than to the management. They should also have full access to all records and SACCO staff.

On the other hand, the Management should cooperate fully with the Committee’s investigations. As a requirement, SACCOs should establish other committees to address specific risks or areas of concern. For instance, a committee could be formed to oversee compliance with regulations governing loan origination and collections.

Develop a Risk Management Policy

It is important that the Management should have a sound risk management policy that takes into account all the risks the Sacco faces. The policy should be developed with the help of a professional risk management consultant. The policy should be reviewed and updated regularly.

The strategy should clearly define procedures in place to identify, assess and manage risks. These procedures should be followed and adhered to by all staff.

It is equally important for the Sacco to consider having an insurance policy that covers all or most of the risks facing the Sacco.

The Sacco management should equally consider having a contingency plan that outlines steps to be followed to deal with future risks.

Members’ needs, regulatory requirements and industry trends change with time hence the Sacco management should strive to adjust and adapt at all times. Therefore, all the aforementioned strategies and policies should be reviewed and updated regularly.

By Ben Oroko

The writer is a Communications Practitioner and Correspondent based in Kisii.


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