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Finance and Investment

The case for the SACCO Deposit Guarantee Fund



By Mary Kiema

SACCO members are both owners and customers of their enterprises. In the event of collapse, they stand to lose both their business and their life savings.  They owe it to themselves to keep their funds safe by adopting best practices in management. The growth and advancement of SACCO societies have presented opportunities and risks in equal measures. In the course of their operations, they may encounter problems and occasionally face the possibility of going into liquidation.  Governance challenges and difficult operations environment are top on the list of these problems. The collapse of a Cooperative society has far-reaching effects on the members and their dependents.

Funds in a Cooperative society are accumulated from members over time. These include shares, deposits both withdrawable and non-withdrawable, and contributions relating to other products. Members patronize their Cooperatives with expectations of benefiting from their funds as per the terms and conditions of the products. The Boards /Committees on their part are expected to exercise the prudence of ordinary men/women of business and safeguard these funds. The Cooperative Act and rules 2004 provide that the board shall indemnify the Cooperative Society in case of losses caused by their actions. The enforcement of this indemnity has been elusive and difficult to be relied on for protection. In any case, a board cannot adequately protect thousands of members from their resources. Regulated SACCOs are expected to meet several prudential standards. Compliance with these standards guarantees a level of comfort to members but another line of defence is necessary. Other initiatives to prevent the collapse of SACCOs include the establishment of the SACCO Society Fraud and Investigation unit.  More viable mechanisms with the potential to build members’ confidence are required.

The SACCO Act 2008 provides for the establishment of a Deposit Guarantee Fund to protect members’ funds. Approvals for this have undergone the necessary levels to allow for implementation. Participation in this fund shall be mandatory for all eligible SACCOs. The SACCO deposit guaranteed amount is Sh100,000.00. The fund shall be financed by the participating SACCOs, grants, donations, investment incomes, and loans. A board of trustees shall manage the fund and determine the contribution of every SACCO based on criteria that will be shared.

The fund will benefit from the lessons learned from the defunct Deposit Guarantee Fund established to protect deposits held by commercial bank customers. Banks are currently mandatory members of the Kenya Deposit Insurance Corporation (KDIC) with the mandate of providing deposit insurance, sound risk management and to provide prompt resolution. Bank customers shall enjoy Sh500,000 covers for their deposits. An annual premium based on the deposits is paid to the (KDIC) by the Banks.

 SACCOs hold members’ funds in large amounts and hence the need for protection. The average amounts at stake are likely to be much higher than Sh100,000.00. Adequate or reasonable refund for some SACCO ought to be higher considering that members have transactional accounts and mandatory non-withdrawable accounts that hold large amounts. |One may argue that these amounts are accumulated to improve their credit scores and may occasionally be used as security for their loans and other members’ loans. In a savings and credit society, there are a few members who are net savers. In the event of liquidation, these few net savers shall suffer the most. The scenario differs from that of banks since SACCOs are member-based organizations and all the likely claimants to the fund are owners.

 From the onset, the biggest challenge in operationalizing this initiative is in the numbers involved. The regulated SACCOs are many and growing. Getting buy-in from these SACCOs and their members is a daunting task. The other concern that may be encountered when lodging a claim relates to documentation. To arrive at what to refund, when to refund, and how to refund, the records of every SACCO must be reliable. The understanding of the terms used is not standardized across the industry. The distinction between shares, deposits, and funds in other accounts must be clear to the eligible members to avoid conflict. For members to benefit from this fund, they must comply with the basic membership requirements. The SACCOs member registers must be reliable.

The effectiveness of the SACCO deposit fund will depend on the perception and commitment of all players. Collaboration with other stakeholders shall be necessary going forward. The success of this initiative will improve the image and build the confidence of the members and potential members of SACCOs

The writer is a consultant on the Cooperative Business model, a member of the Kenya Society of professional Cooperators, and the founder of the SACCOpreneurs group on Facebook.

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Finance and Investment

How does a Cooperative arrive at an ideal board of directors’ composition?



By Mary W Kiema

As a group sets out to form an enterprise, their main concern is to meet their common needs through a business model that is suitable for most of them. Their requirements for the association will be formulated depending on the anticipated nature of the business. The form of business will inform the appropriate rules and subsequent regulations required. The interim governing body at this stage will be composed of some of the founder members who will be responsible for setting up the ground rules.

 In Cooperatives, the objects and membership requirements are contained in the bylaws. These by-laws are specific to an individual Cooperative society. A financial Cooperative for example will provide bylaws that attract members who have the capacity to save, borrow and repay promptly.

 A marketing Cooperative will reach out to the producers or developers of the desired products. At this point the most important assignment is to get numbers regardless of their gender or age provided that they can meet the membership conditions. As the Cooperative takes shape and begins to generate the desired results, the focus is directed to other areas of concern a simple scan through the composition of the membership of a number of Cooperative Societies, shows the dominance of the male gender. This is further evident at the board of directors level and in apex bodies. Attention has been drawn to this state of affairs and certain interventions are being explored to address this.

 As a requirement, a Cooperative Society observes the principle of open and voluntary membership. This means a Cooperative can attract members from diverse walks of life. These members have a right to democratically control their enterprise. The implementation of this democratic member control principle sometimes yields results that go against the tenets of inclusion.  The outcome may sometimes generate discussions that are geared towards attaining the desired status. This will only happen for an enterprise that is deliberately aiming at achieving an ideal position in governance. For most, the disparity goes without being attended to until it is pointed out from within or without.

 Since the promulgation of the Constitution of Kenya 2010, the matter of gender balance has continued to elicit a lot of discussion. The constitution being supreme, all other laws including the Cooperative laws are expected to align.

Enterprises that are private and opt for democratic member control grapple with the challenge of balancing between democracy, appropriate representation and inclusivity.  The desire is to not only have all stakeholders sufficiently represented in the decision-making but also to have an effective organ at the top. The growth and complexity of the Cooperative societies have also further complicated the equation. The qualification requirements for board members go beyond one being a member. To qualify for a board position, some Cooperatives require one to have a certain number of shares and amounts in deposits and to have attained a certain level of education or specific professionalism. This may be interpreted as an avenue for eliminating a particular category from leadership.  With all these hurdles, how does a Cooperative arrive at an ideal board of directors’ composition?

This governance challenge is not an easy one to resolve but it may be the missing link towards addressing issues that have remained in the background for a long time.  As the ground is being levelled to bring all players into the fold, some interventions will be required. The absence of youthful members in the movement may be attributed to their inability to ascend to the decision-making table.   The board of directors are drawn from members, therefore, for youth and women to be on the board they must first be found in the membership. With enough numbers, the electoral zones may be created in a manner that will give all eligible members a chance to serve at the top.

Among the interventions evident include the formation of women and youth networks. Some of these networks have developed elaborate programs to equip the participants with an array of leadership skills that are geared at enhancing inclusivity in institutions. The emphasis is on youth and women because they have been seen to have been left behind although these skills are required across the board. The situation is slowly changing with more women taking up jobs at all levels and being able to participate with others in the management of the organization they belong to. The youths are also encouraged to form workers’ Cooperatives where they can contribute their skills as they grow their unique enterprises.

 Apart from achieving the right composition in terms of demographics, the main concerns have lately turned to the effectiveness of the board. Some skills are wanted among the board. It is for this reason that the issue of accommodating independent directors who have specific skills keeps coming up. One step at a time with the right intentions, an ideal situation will be achieved.

 The writer is a consultant on Co-operative Business Model, a member of the Kenya Society of Professional Cooperators and founder of the SACCOprenuers group on Facebook

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SUCCESS STORY: Kenyan SACCOs help Women Turn Entrepreneurial Dreams into Reality



By Linda Karimi

Nancy Kariuki was a licensed pharmacist who wanted something more: she dreamed of becoming an entrepreneur. Eight years into a career in sales for drug companies, at age 40, she finally took the plunge.

 Keenly aware of the challenges women-owned businesses face, Nancy had been saving money over the years, and by 2020 had amassed Sh1 million (approximately $7,300) in start-up capital.

She opened her business, Essos Pharmacy, in the central business district of Kerugoya, a town of 15,000 in central Kenya.

Nancy was successful for two years in establishing and growing the business. But, in 2022, Essos was struggling to meet increased demand caused by the COVID-19 pandemic.  She needed capital and turned to  Fortune  SACCO.  SACCOs, savings and credit cooperatives, are a popular financial services option in Kenya.

Members of SACCOs invest in them or make deposits and can use that value as collateral when borrowing from the institution. They often can borrow more from a SACCO than from a bank and at a lower interest rate.

Fortune SACCO is one of ten SACCOs participating in a USAID-funded World Council of Credit Unions project under the Cooperative Development Program (CDP) called Technology and Innovation for Financial Inclusion (TIFI). The project seeks to enhance the capacity of SACCOs to lend to micro-, small- and medium-sized enterprises through improving credit risk management, streamlining and simplifying the lending process, and increasing the number of quality financial products available to these businesses.

Fortune granted Nancy a loan sufficient to do what she most wanted – create new jobs. She hired a staff of four, after previously relying only on her husband for extra help. She also enrolled her employees in the National Housing Insurance Fund and the National Social Security Fund, which provide them with healthcare, a pension and social protection.

Nancy also used the money she borrowed to upgrade her point-of-sale and inventory system. She now has more visibility over the operations and financial position of the business. The data also enhances her ability to borrow money in the future, and at a lower cost, because she can now provide reliable financial statements to lenders.

Within a year, the business tripled its revenue and now competes with larger pharmaceutical businesses as a key player in the market. Nancy’s success not only contributes to the economic growth of the community but also provides a source of inspiration for other women entrepreneurs in the area.

The USAID/CDP-TIFI project is transformative because it unlocks the potential of SACCOs such as Fortune, improving how they lend to micro-, small- and medium-sized enterprises. SACCOS in turn helps unlock the potential of those businesses, such as Essos Pharmacy, and people like Nancy, who turned her dreams into reality and improved her community in the process. She is a shining example of what can be achieved with the right resources, determination, and support.

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Finance and Investment

KUSCCO and Aqua for All launch program to provide affordable financing to WASH sector through SACCOs



By Linda Karimi

Kenya Union of Savings and Credit Cooperatives (KUSCCO) in partnership with Aqua for All has launched the ‘Maji Nyumbani’ program aimed at providing affordable finance to the water, sanitation and hygiene (WASH) sector through SACCOs. The program targets SACCOs serving low-income and vulnerable persons across the country with financing being channeled to households and community-based micro, small and medium enterprises (MSMEs).

The program will pilot financing in ten deposit-taking SACCOs from Mombasa, Eldoret, Siaya, Baringo, Embu, Kakamega, Nyeri, Meru, Kilifi, and Nakuru Counties. It will also offer technical assistance to develop WASH loan products that respond to the needs of SACCO members and communities. The pilot phase is expected to take 15 months and to disburse 2,250 loans. Expected target results include reaching 12,500 people comprising of 8,250 women and 4,250 men and sustaining 1,250 jobs.

According to George Ototo, Group Managing Director of KUSCCO, the SACCO sector has a potential of between Sh84.9 billion to Sh174 billion to lend towards the WASH sector, but the SACCOs have faced challenges towards achieving this due to lack of institutional capacity to understand WASH lending, perceived high risk of the WASH sector, lack of awareness of the market size opportunity for SACCOs and lack of member awareness of WASH loan products.

“Through the Maji Nyumbani program, we intend to unbundle or separate the WASH component from the existing loan products. This has the potential to catalyse access to water by availing more financing to SACCO members and Micro, Small and Medium Enterprises (MSMEs). We expect 25 MSMEs to be served per SACCO translating to 250 MSMEs for the ten SACCOs,” said Mr. Ototo.

Marlies Batterink, Aqua for All Regional Manager for East Africa, said that the partnership with KUSCCO will allow prioritizing and scaling WASH loans, creating a significant impact by targeting both households and MSMEs.

The partnership has the potential to reach all corners of the country through the extensive SACCO membership base. Increasing access to loans through KUSCCO aligns with their goal to accelerate access to WASH for underserved, remote communities through mobilizing funds for WASH.

Aqua for All is an international foundation operating primarily in Africa and Asia, while KUSCCO is a Union for all SACCOs in Kenya, providing advocacy, advice, and protection against adverse legislation and restrictions. The Union promotes the organization and development of viable SACCOs.

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