MPs are at the top of the list of those who have defaulted on Sacco loans totalling 64 billion shillings.
The MPs’ cooperative, which has 637 members, is in debt for a total of 939.2 million Kenyan Shillings in outstanding loans.
Within the top saccos in Kenya, the sacco has a non-performing loan percentage of 29.7%, making it one of the highest rates in the country.
A significant number of members of parliament, governors, former politicians, and high-ranking government officials are the principal receivers of loans from the Sacco.
One factor that contributes to the high default rate of their cooperative is the fact that MPs get favourable loan deals.
As one of Kenya’s richest cooperative societies struggles to deal with the load of outstanding debts, members of parliament and former parliamentarians are at the top of the list of Saccos loan defaults, which has even surpassed the threshold of sixty billion shillings.
For the period of time leading up to December, Parliamentarian Sacco had a default percentage of 29.73 percent of its loan book, which is equivalent to Sh939.2 million, according to data provided by the Sacco Societies Regulatory Authority (Sasra), which is the regulatory body for the business.
The Sacco has 637 members, including parliamentarians, governors, former politicians, and the president. The Sacco is struggling because of the lucrative loan packages it offers to Kenya’s highest-paid workers.
With a default rate of 29.73 percent, the MPs’ cooperative has one of the highest default rates among the top Saccos.
Other smaller Saccos, such as the ACK Uthiru Parish Co-operative Society, have a non-performing ratio of 97.92 percent; the Gikomba Market-based B-Smart (88.03 percent); and another church-focused Sacco, Pefa, has a default rate of 71.8 percent.
The overall default ratio for non-withdrawable deposit taking (NWDT) Saccos, such as the MPs’ cooperative, was 7.12 percent, which is equivalent to 7.57 billion shillings.
On the other hand, the withdrawal rate for these Saccos was 8.66 percent, which is equivalent to 56.49 billion shillings. As a result, the total number of nonperforming loans increased to 64.06 billion shillings.
The Parliamentarians Sacco has reportedly established a loophole that enables members to circumvent the necessity that loans be withdrawn from their wages or checked off due to defaults.
According to a person familiar with the organization’s operations, this leaves the lawmakers’ discretion over debt repayment.
Sacco, which has a sizeable portion of its members who earn more than one million shillings per month, offers substantial credit packages, including an immediate mobile loan of up to four hundred thousand shillings, as well as other products with a maximum limit of twenty million Tanzanian shillings.
Consequently, this has increased the visibility of the Members of Parliament’s Sacco, whose members are notorious for their extravagant lives, with some of them flashing fancy automobiles and piles of cash.
Protests that lasted for many weeks among the younger people in response to planned tax increases in the Finance Bill 2024 were sparked by the huge incomes, benefits, and ostentation of members of parliament (MPs).
Sasra requires Saccos to maintain the NPL ratio, which is the percentage of loans for which no interest or principal has been received for at least three months, at no more than five percent, in order to maintain stability. This is because cooperatives lend money to their members using deposits.
In the most recent supervision report, Sasra says, “A total of 109 deposit-taking Saccos had their non-performing loan ratios (NPLs) above the five percent threshold, with 64 of them recording an NPL ratio above ten percent. This indicates a serious decline in the quality of their loans and subsequently poses a threat to their compliance, performance, and sustainability.”
In conclusion, it is evident that the NWDT-Saccos segment, like their counterparts in the DT-Saccos sector, is also battling with the quality of the loan portfolios. As a result, they are required to put in place suitable loan recovery methods in order to enhance the quality of their loan portfolio.
MPs in Kenya get a monthly salary of 710,000 Kenyan Shillings, making them among the highest-paid lawmakers in the world.
In addition, they receive greater benefits, such as the ability to pay for their vehicles and other allowances, which easily bring their income to more than one million Kenyan Shillings.
If they did that, they would receive more than thirteen times the average salary of 74,500 Kenyan shillings in the private sector.
It is a reflection of Parliamentarians Sacco’s standing as the richest cooperative society under Sasra management because the average loan per member at Parliamentarians Sacco was 4.96 million Ugandan Shillings, which is 45 times more than the average loan for the sector.
The Sacco’s maximum loan amount is equivalent to three times the savings for checkoff deductions.
By enabling non-check-off borrowers to borrow up to 2.5 times their savings, the Sacco puts itself in a position where it is vulnerable to defaults.
According to a statement on Sacco’s website, the loans are “recoverable within the parliamentary term; in particular, the loan must be below or equal to the shares by the end of the term.”
This situation has added a new dimension to the significant percentage of non-performing loans that the Sacco holds.
In an economic environment that has seen enterprises lay off personnel, which is a trigger for loan defaults in company-backed Saccos, more than half of the 357 Saccos, or 189 cooperatives under Sasra, had a loan default rate of more than five percent.
The slow economy has significantly impacted traders’ cash flow, particularly for small businesses associated with Saccos, such as B-Smart, which primarily recruits members from Gikomba Market.
The list of co-operatives with high default rates also includes saccos, which are characterised by the fact that their main members come from agricultural organisations, churches, and matatu companies.
There were a total of 109 DT-Saccos with an NPL ratio of more than five percent, as well as 80 NWDT-Saccos with comparable results.
DT-Saccos that were based on agriculture had the highest average default rate, which was 18.8 percent. Community-based DT-Saccos had the second highest default rate, at 15.7 percent, followed by government-based DT-Saccos, at 11.27 percent, and commercial sector-based DT-Saccos, at 6.18 percent.
Sasra reports that the non-remitted monies owed to Saccos by various employer institutions, amounting to 2.57 billion shillings in 2023, significantly influenced the increase in defaults to a total of 64.06 billion shillings.
Sashra added, “It was noted that the rise in the NPL ratio of the state corporation-based DT-Saccos was due to defaulted loans caused by the employer’s state corporation agency not sending loan repayment deductions.”
All of the DT-Saccos that were based on the university and the Saccos that were based on the county government suffered a rise in their NPL ratios, and we observed comparable situations with both of your institutions.
