State rejects SACCOs request to pay interest and dividends from loans

The Cabinet Secretary for Co-operatives and Micro, Small and Medium Enterprises (MSMEs) Wycliffe Oparanya has raised concern over growing financial mismanagement within savings and credit co-operative societies (SACCOs), warning that some institutions are pressuring the ministry to allow them to declare interest on deposits and dividends without adequate revenues or cash flows to support the payouts.

Speaking during the 11th Annual Leaders Convention of the Kenya Union of Savings and Credit Co-operatives (KUSCCO) in Mombasa, Oparanya said the practice has in the past led to the declaration of non-existent surpluses merely to sustain member payouts.

Oparanya revealed that out of 69 SACCOs subjected to regulatory review; only 19 have completed the process.

However, their requests to pay interest and dividends despite receiving board approval were rejected for failing to meet financial and regulatory thresholds.

He said the government has instituted firm measures to safeguard liquidity and enhance financial stability within the sector. These include restricting the payment of honoraria and limiting certain expenditures by SACCOs.

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To strengthen accountability, the CS announced that no SACCO will be audited by the same auditor for more than three years, citing past cases where prolonged engagements compromised auditor independence and professionalism.

In addition, chief executive officers and chief finance officers will now be required to sign audited financial statements alongside authorised board signatories to ensure shared responsibility for financial disclosures.

Oparanya also reiterated last year’s directive banning the use of external loans to finance dividend payments. Under the reforms, only SACCOs with sufficient surplus, that have met capital adequacy requirements and provided for statutory reserves, will be permitted to distribute returns to members.

Any SACCO seeking to procure an external loan must first obtain written approval from the Commissioner for Co-operatives.

The reforms form part of broader government efforts to strengthen oversight, improve governance standards and safeguard the financial stability of the SACCO movement, which plays a critical role in mobilising savings and providing affordable credit to millions of Kenyans.

By Obegi Malack

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