The Ministry of Cooperatives and Micro, Small, and Medium Enterprises (MSME) Development has cautioned SACCOs against paying unrealistic bonuses, dividends, and interest, as such cash outflows could cause liquidity challenges if not properly managed.
Through a circular sent to SACCOs by the State Department of Cooperatives, the Office of Commissioner David Obonyo stated that the office has noted that some SACCO officials are succumbing to pressure from members to pay unrealistic bonuses, dividends, and interest, in total disregard of business performance.
“This has led to unethical accounting practices that factor in exaggerated income and interest on non-performing loans when calculating surpluses,” read part of the circular.
The circular stated that members’ deposits are being depleted, resulting in financial distress and insolvency in most SACCOs.
The Commissioner directed SACCOs to observe prudence in the determination of dividends, honoraria, interest, and bonuses paid to members.
“Payment must be commensurate with their performance, in conformity with Sections 46 and 47 of the Cooperative Societies Act,” he said.
The SACCOs have been directed to adhere to and comply with IFRS 9 and IFRS 36 when calculating surpluses and to ensure that capital adequacy and liquidity requirements are met.
YOU MAY ALSO READ:
The SACCOs were also directed that dividends and interest are only to be paid when the SACCO has no loan arrears, pending bills, or difficulties refunding members’ deposits.
The SACCOs were further directed that dividends and interest are only to be paid from surpluses or retained earnings and that when declaring interest on dividends, these should not be financed from external borrowing.
The SACCOs, however, were reminded that statutory reserve funds should be held in a separate account and invested in low-risk instruments and regulated institutions, as provided for in Sections 45 and 47 and Rule 37 of the Cooperative Societies Act.
By Felix Wanderi.
Get more stories from our website: Sacco Review.
For comments and clarifications, write to: Saccoreview@
Kindly follow us via our social media pages on Facebook: Sacco Review Newspaper for timely updates
Stay ahead of the pack! Grab the latest Sacco Review newspaper!
