Member deposits in savings and credit co-operative organisations (Saccos) will finally be insured if Parliament approves proposals to create a special fund to protect depositors’ cash if an institution goes bust.
In proposed changes tabled in Parliament by Majority Leader Kimani Ichung’wah, the State aims to create a Deposit Guarantee Fund (DGF) to act as an insurance policy for reimbursing Sacco depositors for their losses up to a certain limit, following commercial banks that already operate a similar scheme.
“A member of a Sacco society may, upon the Sacco society’s licence or authorisation being revoked, lodge a claim with the Deposit Guarantee Fund, in such form and within such time as the Deposit Guarantee Fund may determine,” Mr Ichung’wah said in proposals in the Sacco Societies (Amendment) Bill, 2025.
The Sacco sector in Kenya currently holds more than Sh1.3 trillion in member deposits.
Bank deposits in Kenya are already protected by the Kenya Deposit Insurance Corporation (KDIC), which runs a deposit insurance scheme for member institutions, ensuring depositors are protected against loss of their insured deposits in the event of a bank failure.
KDIC typically refunds affected depositors up to Sh500,000 in the event of a bank’s closure.
Apart from protecting member deposits, the State is also seeking to tighten the leash on the governance of secondary co-operative societies by placing them under the regulatory ambit of the Sacco Societies Regulatory Authority (Sasra).
“The authority shall have power to determine the capital adequacy standards and requirements for each secondary co-operative society conducting central liquidity and shared services business and prescribe the minimum liquidity requirements and permissible investments,” the Bill states.
Missing link
A secondary co-operative society is a Sacco registered under the Co-operative Societies Act, whose membership is restricted to primary Saccos, rather than individual members, and which carries out central liquidity and shared services business.
This comes as the State looks to stave off the risk of re-emergence of the crisis that hit the sector in the wake of liquidity challenges faced by the Kenya Union of Savings and Credit Co-operatives (Kuscco).
At the start of 2025, 201 out of a total 355 Sasra-regulated co-operatives were left with a Sh14.6 billion exposure after Kuscco, a secondary entity, wobbled under liquidity pressures following a web of fraud brought to light by a forensic audit conducted by audit firm PwC.
The proposed changes also target to regulate the central liquidity and shared services by Sasra, which was identified as a missing link and a key factor in the Kuscco liquidity crisis.
The central liquidity and shared services business entails receiving money from member Saccos, the way Kuscco does, for purposes of lending and/or investing.
“The principal object of this Bill is to amend the Sacco Societies Act, Cap. 490B, to provide for the establishment of secondary Sacco societies, and regulate the conduct of central liquidity and shared services business by secondary Sacco societies,” the Bill states.
Secondary co-operative societies undertaking central liquidity and shared services businesses would be required to hold and maintain a liquidity reserve account for each member Sacco society. A liquidity reserve account refers to a designated operating account through which member saccos payments are settled by the secondary co-operative society.
“A co-operative society shall not undertake central liquidity and shared services business unless that co-operative is licensed by the authority. A co-operative society undertaking central liquidity and shared services business shall develop and adopt a code of business conduct or rules which shall be binding on all its members,” the new Bill proposes.
The government also wants secondary Saccos to have a statutory reserve requirement, implying they should at all times have a portion of members’ deposits ring-fenced and held in a central pool.
This proposal, akin to the cash reserve requirement that exists in the banking sector, is designed to ensure that there is a buffer that is able to provide a cushion for members should the secondary Sacco that has been collecting their deposits run into liquidity headwinds.
“A secondary co-operative society undertaking central liquidity and shared services shall maintain a minimum holding of its members’ Sacco deposits in the Central Liquidity Fund as may be prescribed,” the Bill states.
Those contravening the provisions of the proposed law face a fine not exceeding Sh3 million or a jail term not exceeding five years or both.
