The leaders of top savings and credit co-operative societies (Saccos) have been cautioned against borrowing large sums of money from banks to pay substantial dividends to their members, as Co-operative and MSMEs Cabinet Secretary Wycliffe Oparanya has revealed.
Dr Oparanya stated that many Saccos are facing liquidity challenges due to their inability to repay loans, which is contributing to poor governance.
According to Dr Oparanya, government investigations have confirmed that some financial co-operatives’ leaders are engaging in unethical business practices, such as borrowing to pay dividends without basing the payments on actual annual profits earned. This behavior has led to unmanaged debts and challenges with regulators, undermining good governance principles and professional conduct among managers. The CS made these comments during the National Ushirika Adjudication Award ceremony for co-operatives held at Safari Park Hotel.
He emphasized that dividends should be declared based on actual profits, not borrowed funds. He stressed that borrowing to pay dividends when a loss has already been incurred is unethical and will not be tolerated. Annual dividends should be paid from the profits earned or retained earnings, and liquid Saccos typically have significant retained earnings from which they sometimes pay dividends.
The CS noted that a similar issue is arising in the coffee sub-sector, where co-operative leaders of primary societies are also resorting to heavy borrowing to pay high earnings to farmers, exceeding the income earned.
