Saccos are grappling with liquidity constrain as employers withhold over Ksh3 billion in non-remittances, the issue which has led to heavy loan defaults among employees.
The heavy loan defaults have put the Saccos in a state of dilemma of whether to retain or abandon the check-off system for loan and savings deductions to remain stable.
Under the check-off arrangement, employers are supposed to deduct loan repayments and savings contributions directly from employees’ salaries and remit the funds to their respective Saccos.
In recent years, many employers, particularly in the public sector, have failed to remit these deductions, triggering liquidity strain among Saccos and increasing loan default for members. However, those ditching this system to avoid non-remittances piling up are running into the challenge of ensuring members continue saving and servicing loans.
Many saccos are now ditching the check-off system and opting for direct payments through mobile banking and standing orders to avoid the non-remittances problem, with the amount having swelled 34.7 per cent to Ksh3.49 billion last year from Ksh2.59 billion in 2023, according to data from the sacco’s regulator.
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Sacco Societies Regulatory Authority (Sasra) says State-corporation-based deposit-taking saccos cut the non-performing loans (NPLs) ratio to 9.96 per cent last year from 19.1 per cent in 2023, mostly on the back of switching to their front office service activity (Fosa) savings account operations for processing of members’ salaries and sacco deductions. Sasra notes that the use of Fosa accounts has enabled the State corporation-based saccos to have a first charge on savings and loan interest deduction rather than waiting for employers to make the deductions and remit. The move is in line with Sasra’s June 2019 advisory, in which it asked saccos to move away from check-off systems if they are to front office service activity (Fosa) savings account operations for processing of members’ salaries and sacco deductions.
Sasra notes that the use of Fosa accounts has enabled the State corporation-based saccos to have a first charge on savings and loan interest deduction rather than waiting for employers to make the deductions and remit.
The move is in line with Sasra’s June 2019 advisory, in which it asked saccos to move away from check-off systems if they are to address the challenge of non-remittances.
Sasra added that some four public universities, which are using Fosa to handle savings and loan repayment, closed 2024 with an NPL ratio of 0.19 per cent compared with six other public universities that relied on the check-off system and closed the year with the ratio at 6.89 per cent.
Despite these successes, some of the saccos that have never used the check-off system or have abandoned this system are struggling to recover loan repayments from members. Many of their members are defaulting or delaying payments without the convenience of automatic deductions.
The situation has exposed the structural dilemma of how to balance efficiency, accountability, and convenience in collecting member contributions.
By Juma Ndigo
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