Savings and Credit Co-operative Societies (Saccos) continue to reel under the weight of non-remitted funds as the financial co-operatives are owed Ksh 2.7 billion by various government agencies and private companies.
Statistics collected by the Sacco Societies Regulatory Authority (SASRA) show that a total of Ksh 2.7 billion was owed to 80 regulated Saccos by various employer institutions, down from Ksh 3.4 billion in 2021
According to the regulator, this non-remittance affected some 66,452 members, who could either not make timely repayments of their loans or save.
“Dealing with this problem of employers who fail to remit Sacco dues is a tricky legal area that the regulator cannot wade into. This is because the employer is an agent of the Sacco and therefore not under the regulator’s supervision,” said Peter Njuguna, Chief Executive Officer, SASRA.
“What the regulator has been doing is encouraging affected Saccos to work closely with employers to understand why there is a delay in remittances. In the case of country governments and assemblies, the excuse has always been that the national government has delayed in disbursing funds to the country government,” said Mr Njuguna.
While section 35 of the co-operatives Act stipulates punitive measures that can be taken against employers who fail or delay in remitting Sacco dues, these provisions are said to be weak and unenforceable by the Commissioner for Co-operatives, who is accused of being less effective.
“The employer has a contract with the Sacco, an arrangement that does not involve the Sacco regulator,” said Mr Njuguna, adding that the powers to take action on culprits who fail to remit Sacco dues lie in the office of commissioner of co-operatives development.
New Law
Expectations are high within the co-operatives industry that the co-operatives bill 2023, which recently received cabinet approval, will sort out the problem of non-remittance for good.
The proposed co-operatives law is expected to strengthen the governance framework for co-operatives by re-introducing the role of co-operative commissioners and also expanding the protection of co-operative members’ funds through enhanced supervision and regulation.
“The strengthening of the institutional framework that oversights co-operatives is a shot in the arm for smallholder agriculture that is the mainstay of millions of Kenyan households. The new framework will facilitate aggregation of agricultural produce for both our staple cash crops and emerging and fast-growing ventures in fisheries and aquaculture, cereals, horticulture, beekeeping, avocados, macadamia nuts and cashew nuts, among others,” noted the Cabinet.
As matters stand, the compounded effect of delayed or defaulted remittances is the perennial failure of these regulated Saccos to meet obligations to members arising from the resultant liquidity constraints. This, in turn, leads to members’ apathy and loss of confidence, as well as high levels of defaulted loans.
SASRA has been in consultation with the other stakeholders and policymakers to have a re-look at the efficacy of the prevailing legal and operational framework of the concept of remittances by employer institutions of deductions made and due to Saccos.
This is more so with the revelation that the greatest proportion of non-remitted funds, due to these financial entities, are owed by the state and state-related agencies and institutions.
SASRA says that whereas the legal and regulatory environment is being reconsidered as a long-term solution, financial Saccos are advised to deepen the use of their withdrawable deposits savings account (FOSA) as the payment point channel of the salaries and other income streams in respect of their members.
They have also been told to use that payment point to deduct all the deduction dues from their members.
Reliance on direct employer deductions is being discouraged and should be reduced to the bare minimum and used only where necessary.
Undermining financial performance
The SASRA Annual Supervision Report 2022 noted that the perennial failure by various employer institutions to remit Sacco deductions continues to undermine the financial performance of these financial societies despite various policy and administrative measures being put in place to address the problem.
These non-remitted funds belonged to a total of 66,452 members, either as loan repayment deductions or non-withdrawable (BOSA) savings deductions as of September 2022.
The bulk of the non-remitted deductions to financial societies amounting to Ksh 2.02 Billion, which is equivalent to 74.78% of the total non-remitted funds related to loan repayment deductions, implying that loan portfolios of proportional amounts stood defaulted, besides undermining the liquidity position of the affected Regulated Saccos to meet their financial obligations.
The failure by various employer institutions to promptly remit the BOSA savings’ deductions, on the other hand, has the effect of reducing the borrowing capabilities of individual members of the regulated societies Saccos since most of the borrowing is pegged on the BOSA savings, which acts as collateral.
Saccos with members from public sector organizations are most affected by the non-remittances problem.
A large number of Regulated Saccos, which draw their membership from various employer firms and organizations, continue to operate largely on the strength of remittances from such employer firms and organizations.
These remittances are largely premised on the provisions of Section 35(1) of the Co-operative Societies Act, which allows employees to instruct their employers to periodically deduct from the employees’ emoluments such sums as the employee may determine and to remit such deductions to the employees’ designated societies or co-operatives.
There are two traditional forms of remittances from employer firms and organizations. Firstly, are the remittances designated as non-withdrawable deposits (BOSA) deductions and are paid into the non-withdrawable deposits account held by the employee in the society.
These deposits are mainly utilized as collateral for borrowings by the employee from the Sacco but are refundable to the employee by the society upon exit.
Secondly, are the remittances designated for periodic repayment of loans and credit facilities issued to the employee by the society.
The amount owed as non-remitted dues to these societies in 2022, however, significantly dropped from the previous years in which a sum of Ksh 3.40 billion and Ksh 5.04 billion were reported in 2021 and 2020, respectively.
The drop in the amount of money owed to regulated societies, according to SASRA, is a testament to the implementation of the Authority’s General Advisory Note on Non-Remitted Deductions Due to Saccos from Various Employer-Institutions – Circular No. SASRA/800/2/2019, dated 11th June 2019, is bearing fruits towards the elimination of the non-remittance issue among the regulated financial societies.
Liquidity Crunch
Analysis by SASRA shows that the bulk of the non-remitted funds as of September 2022 were largely on account of loan repayments, which amounted to Ksh 2.02 Billion, equivalent to 74.78% of the total non-remitted refunds.
The direct impact of these non-remittances is that the total loan portfolio among the regulated Saccos defaulted in an almost equivalent amount, besides occasioning a liquidity crunch and pressures on the Saccos to meet their financial obligations.
The non-remittances also had a direct impact on the regulated Saccos reported interest income, which is usually suspended once the loans become delinquent.
DT-Saccos were the most affected segment by the non-remittances, with 57-DT-Saccos reporting being owed deducted but not remitted funds by various employer institutions on account of loan repayments, with the aggregated loan repayments owed amounting to slightly over Ksh 1.75 Billion.
County Governments and Assemblies owed the highest amounts to financial co-operatives, which stood at Ksh 1.35 Billion and accounted for 49.97% of the total non-remittances and affecting a total of 43,139 members of regulated societies, who are principally their employees.
The highest proportion of the funds owed by County Governments and Assemblies were due towards loan repayments, implicitly denoting the poor quality of the loan portfolios of the regulated Saccos.
Public Universities and Tertiary Colleges had the second highest amount owed to regulated Saccos on account of non-remitted deductions, which stood at Ksh 620.52 Million, accounting for 23.01% of all the non-remitted deductions.
The Private Sector companies and the State Corporations (parastatals) owed Saccos Ksh 428.95 Million and Ksh 143.09 Million, representing 15.91% and 5.31% of the total non-remitted deductions, respectively.
The public-owned companies, which include public sector water companies, owed regulated Saccos a total of Ksh 64.18 Million, representing 2.38% of the total non-remitted deductions.
The regulator points to this perennial failure by employers to remit Sacco dues as one of the reasons some financial Saccos are under strain or have closed shop.
