The Ministry of Cooperatives, Micro Small and Medium Sized Enterprises (MSMEs) Development faces the risk of failing to implement various programmes and projects due to insufficient funding.
According to a memo from the Co-operatives Alliance of Kenya(CAK), the Ministry of Cooperatives and MSMEs Development has been allocated a meagre Ksh 1.8 Billion in the proposed 2023/24 National Budget instead of the KSh 5.3 billion it had requested.
“Thus, programmes/projects designed to spur social-economic transformation and growth will no doubt suffer low budgetary allocation,” said the CAK.
The lobby group points out that the MSMEs sector, which largely depends on the goodwill of the cooperative movement despite its huge potential, will suffer a 78% budget shortfall. This sub-sector was to be allocated KSh 58.8 billion but has only got KSh 12.9 billion.
CAK warns that inadequate funding of the Ministry will result in delays and non-completion of planned programmes and projects-hence underfunding will seriously affect operations of the Cooperatives sector.
The Ministry is expected to carry out a range of functions which included the promotion of Public-Private Partnerships(PPPs) and Joint Ventures; promotion of research and development in Cooperatives; enhancing the productivity of MSMEs; carrying out capacity building in County Governments; reviving Green Grams Project and revive several SACCOs in the Coffee, Tea, Sugar, Cotton and Pyrethrum sub–sectors.
CAK notes that Cooperatives and SACCOs have the potential to transform the economy through the creation of job opportunities, the generation of funds to the Government through taxes and contributions to the country’s GDP
Available figures from the latest Kenya Economic Survey-2022 indicate that the number of cooperatives has grown over the years by 30%, from 19,951 in 2017 to 25,984 in 2021. The sector impacts about 63% of the population directly and indirectly and contributes over 30% to the Gross Domestic Product(GDP).
In a memo to the Cabinet Secretary, Ministry of Cooperatives, and MSME Development, CAK has proposed several interventions for financial cooperatives and those engaged in the financial sector.
For instance, the lobby group proposes that the Commissioner for Cooperatives Development institutes legal proceedings in court, on behalf of the cooperatives industry, to recover non-remitted and delayed SACCO dues by employers.
CAK suggests that National Treasury should move and recover unremitted deductions, estimated at over KSh 4 billion, for those hard-to-recover cases, a goal that should be achieved by December 2023.
Another radical proposal contained in the CAK memo, published in November 2023, is for recognition of Saccos as financial intermediaries that can process terminal dues for pensioners and allow Saccos to continue offering services to retirees. Already, there is intense lobbying for National Treasury to have pension payments processed through SACCO FOSA accounts.
At the moment, SACCO FOSAs are not recognized for payment purposes, e.g., for pension, as Sacco members must channel the same through Commercial Banks, denying Saccos growth opportunities.
This leads to loss of membership and deposits from members once they retire, denying the Saccos much-needed liquidity to continue operating. It also denies members the opportunity to continue being active borrowers and savers even as they enter into a new phase of their life in retirement.
CAK also says that there is no legal requirement for employees to have clearance from their SACCOs upon exit from employment.
When members exit employment while servicing loans held with Saccos, they tend to default on their repayments, leaving the SACCOs with bad loans that affect their going concern.
The industry lobby is proposing that the Ministry should safeguard SACCOs from such possible losses by ensuring employers take their agency obligations more seriously by recovering and remitting dues owed to a SACCO.
Action needed includes legal provision for employers to have their exiting employees clear with SACCOs before their final dues are paid out, or change of pay point is effected.
It has been observed that determination of cases referred to the Cooperative Tribunal takes time to be resolved. This affects the confidence in cooperatives by affected parties.
Considering that the Cooperative movement is large and widespread, there is a need to have cooperative-related disputes led by the sector itself for efficient and timely resolution.
CAK proposes a review of the current set-up where the Cooperative Tribunal reports under the Judiciary Recall the Cooperative Tribunal to be under the Ministry of Cooperatives and MSME Development.
The lobby group has petitioned Treasury and the Ministry to Amend the Income Tax Act Sec. 19(A) to exempt all members of Cooperative Societies, including Chamas and groups, from payment of withholding tax on their dividends/interest.
With the Ministry yet to begin the process of amending the outdated Cooperatives Act Cap 490, to align it with the current constitution, the CAK is also pushing for harmonization of all existing Cooperative laws to align them with the current market practices and with the mother law.
The lobby is urging for fast-tracking of the Cooperative Societies Amendment Bill in parliament that will allow SACCOs to deal in foreign exchange, attracting diaspora clients and managing risk through hedging of currency volatilities.
In order to protect its interests, CAK is proposing the formation of a Financial SACCO Federation-that will champion their specific needs as Financial Saccos and that this Federation of Savings and Credit Co-operatives of Kenya be in place within the first six months of 2023.
