The Sacco Societies Regulatory Authority (Sasra) and the Ministry of Co-operatives raised alarms over powerful individuals joining saccos in Kenya, depositing minimal savings while leveraging their influence to secure large unsecured loans.
This trend, described as a growing threat to financial stability, is putting ordinary members’ savings at risk as non-performing loans surge, straining the cooperative sector’s ability to safeguard funds.
Sasra’s latest report highlights an 11.5% increase in SACCO loans, reaching KSh 758.57 billion in 2023, with some high-profile borrowers defaulting on multimillion-shilling unsecured loans.
These individuals, often politically connected or affluent, join saccos with deposits as low as KSh 1,000, exploiting lax regulations to access loans far exceeding their savings.
Unlike traditional borrowers who rely on guarantors or collateral like title deeds, these elites secure loans through influence, bypassing stringent checks.
The Ministry of Co-operatives, led by CS Wycliffe Oparanya, noted that this practice undermines the cooperative model, which thrives on member trust and shared financial responsibility.
“Saccos are meant to empower ordinary Kenyans, not serve as personal banks for the elite,” Oparanya said during a Nairobi conference. The influx of powerful members has led to a rise in bad loans, with some saccos reporting delinquency rates as high as 5%, threatening liquidity.
Sasra’s CEO, Peter Njuguna, pointed to weak governance in some saccos, where influential figures sway loan approvals. Unlike commercial banks, which enforce strict credit checks, saccos often rely on member-driven decisions, making them vulnerable to manipulation.
The Kenya National Police DT Sacco, for instance, maintains a low 2.5% delinquency rate by linking with Credit Reference Bureaus (CRB), a practice not all saccos adopt.
The risk to members’ savings is significant. When defaults occur, SACCOs may struggle to recover funds because unsecured loans lack collateral. This circumstance has sparked calls for tighter regulations, including mandatory CRB checks and caps on unsecured loans.
Asra is also pushing for digital platforms to enhance transparency, as seen with Stima Sacco’s mobile banking innovations.
Ordinary members, such as Jane Wambui, a teacher in Nakuru, feel betrayed. “We save diligently, but our money is at risk because of a few powerful individuals,” she said. The government plans to amend the Sacco Societies Act to curb such abuses, ensuring saccos remain a safe haven for Kenya’s 6 million cooperative members.