Commissioner of Co-operatives David Obonyo spoke to the Business Daily on the state of the Sacco subsector following financial scandals at the Kenya Union of Savings and Credit Co-operatives (Kuscco) and the Metropolitan National Sacco that have put billions of shillings worth of members funds at risk of loss, causing jitters.
What is the state of Kenya’s Sacco subsector in the wake of a fallout of the Kenya Union of Savings and Credit Co-operatives (Kuscco) and the Metropolitan National Sacco? Are there others facing challenges?
No, to me the industry is stable. We have tightened our systems and operations.
For instance, we issued a circular on the payment of dividends last December because we realised that the few saccos going under were using the same strategy of creative accounting by massaging the figures to indicate that they had made a profit whereas profit is not there because of pressure from members some saccos want to be seen that they have paid high dividends.
You know dividends are cash out. It is a very big expenditure so if you cheat for maybe two to five years consecutively you will find that you have drained a substantial amount of members’ funds. So that is one area we are very keen on.
Which other measures are you taking to ensure the financial integrity of the sub-sector?
We have also told the auditors to be keen and ensure that the financial statements of the saccos reflect the true picture of their positions.
Then there is the issue of providing for doubtful debts, those that are not likely to be paid. We have instructed the Saccos to make provisions for these debts so that it doesn’t create a wrong or false image that the money is there whereas it is not there.
These are some key measures we are putting in place to safeguard the industry. Fortunately, the few saccos that have conducted their annual general meetings (AGMs), particularly the big Saccos I have seen all of them still doing well. Last year, appears to have been a very good year for saccos.
Most have paid interest of between eight percent and 10 percent as a return on deposits, which is a good return.
What is the likely impact of the Kuscco scandal on the financial stability of the Sacco sub-sector?
You know we are asking them (saccos) to make provisions. All those people who invested in Kuscco we have asked them to provide over some time.
It is a good way, especially now when they are declaring dividends so that they don’t declare a lot of dividends anticipating that there is money from Kuscco, yet this dividend should come from the surplus they are realising.
How many saccos have you asked to make provisions and for which period?
We have asked everybody with savings in Kuscco to make provisions for them over some time from one to five years as a good financial practice.
You know with Kuscco this money you may not get it so the best thing is to remove it from your books and make it like a provision or it can be a loss and that is why we are saying you should not provide for it 100 percent, provide a portion of it gradually as also we work from the other end and if things work well still they will have their money back.
How much should saccos set aside from their earnings to cover their botched investments in Kuscco?
We are not asking them (saccos) to provide 100 percent but gradually over a period of time based on their financial strength and the amount invested. These are the two factors that we are considering. We don’t want them to provide so that they make losses.
How many Saccos had put money in Kuscco?
Unless I check the records, I don’t have the actual number but you know the major ones we are talking of are people who had fixed money there in what we are calling CFF (central finance facility. That is the money we are targeting but you know the people who had money there are the big Saccos.
What is the progress in the recovery of the troubled Metropolitan National Sacco?
You know with Metropolitan the situation was worse. It is not like Kuscco.
They have no assets, unlike Kuscco where inasmuch as money has been lost there is something you can salvage. Liquidity wise Kuscco is in a better position than Metropolitan. For Metropolitan, out of the members’ funds, over 80 percent is not there.
This affects individual members while for Kuscco it affects the corporate so the members are not feeling the impact directly.
Does Metropolitan Sacco have a chance of recovering?
You know, for Metropolitan Sacco, technically it is insolvent and that is a fact. The issue is that the little money we were able to spot, about Sh7 billion, which outrightly we felt was mismanaged.
After the enquiry, we surcharged the officials but they have gone to court. You know we are not in control of the court process. That is what has affected our strategy.
Does this mean you have currently stalled in terms of recovering members’ funds at Metropolitan Sacco because of the court case?
Yes, we have stalled because the matter in court has been silent.
For us, we were surcharging cases that are civil because for us it is about recovery I’m aware the Directorate of Criminal Investigations is also investigating criminal offences but I’m not sure whether they have completed their investigations so that they can also charge them (suspects) and take them to court for prosecution.
If Metropolitan Sacco is technically insolvent why is it still in operation?
Yes, it is operating, there are about 2,000 members who are still patronising the Sacco.
There are some arrangements with the financiers to support them (sacco) to meet some short-term loans. However, that one alone cannot revive the Sacco. We must recover that money (Sh7 billion) for the Sacco to become up and running.
We are giving it time to see.
The challenge is that when you wind it up these members will lose because you would have now closed the shop and told members you have no money, go home. You know in a cooperative it is only the board, which can sue or be sued on behalf of the Sacco.
If you wind it up it means there is no board and that entity has been cancelled. So nobody will follow up anyway and this issue if recovery will be finished. That is what most of the people who have misappropriated the funds wanted. They had wanted the Sacco to be wound up.
That was their original plan. You know if the sacco is not there even the commissioner cannot go to court because you are going there on behalf of who.
That is why we feel that, right now there is some hope because we don’t want to dash away even the little hope that is remaining in members.
How much fresh capital does Metropolitan Sacco require to resume normal operations?
Our aspirations is to recover all members’ funds. We are sure that if we are able to recover that money (Sh7 billion) we can bring back the Sacco. As much as it may not be where it was but at least it will be somewhere it can be able to offer services to the members.
All members money need to be recovered, all members deposits need to be recovered and the money we were surcharging them is Sh7 billion. I think it will pay most of the deposits and the Sacco will be up and running.
