‘Good Dividend Manners’
Saccos play a crucial role in our country’s development by mobilizing and pooling resources for lending to members, most of whom are Micro, Small, and Medium Enterprises (MSMEs) with limited capital or who lack borrowing qualifications in mainstream financial institutions.
According to the 2023 Sacco Supervision Annual Report, Kenya has 13,511 Saccos with a membership of 10.76 million, representing 20% of the total population. These Saccos have an asset base of Ksh 2.84 trillion, which is 18.7% of the nominal GDP. However, only 357 Saccos, or 2.64%, are regulated by the Sacco Societies Regulatory Authority (SASRA). This raises concerns about the effectiveness of regulatory systems within the Sacco and cooperative movement as a whole.
These regulatory shortcomings have led to ongoing governance challenges, resulting in unethical practices that have caused the loss of members’ deposits, eroded public trust in the movement, and hindered the full realization of the cooperative’s original spirit.
At the heart of every cooperative is the principle of serving members rather than focusing solely on profit-making. Saccos were founded on the values of mutual assistance and solidarity. While financial viability is important, our main focus must always be on meeting the needs of our members. We must work to uplift the lives of our members by providing the financial support necessary for them to achieve their dreams.
Access to credit is essential for growth, but we must also emphasize the importance of responsible borrowing. Sacco members should be aware of their ability to repay loans, ensuring they borrow for productive purposes. Irresponsible borrowing can lead to financial strain for both individuals and the Sacco. We should encourage financial discipline and equip our members with the knowledge needed to make sound financial decisions. We must avoid reckless borrowing and focus on self-sustainability, as enshrined in the cooperative movement’s spirit.
It is vital to practice what I call “good dividend manners.” Members should not only focus on the short-term benefits of dividends but also consider long-term sustainability. Saccos should reinvest wisely to remain financially healthy and capable of meeting their members’ future needs. Sustainable dividend practices are hallmarks of good governance and responsible financial management.
In this regard, my ministry, through the Office of the Commissioner for Cooperative Development, is working on a dividend policy that will address issues such as borrowing to pay dividends, declaring dividends from losses, and paying dividends that are financially unjustifiable and unsustainable—often in an effort to appease and attract more members.
I affirm the government’s commitment to supporting cooperatives across the country by creating an enabling regulatory environment that fosters growth and sustainability. We will work closely with Saccos, providing policy guidance, regulatory oversight, and capacity-building opportunities to strengthen this vital sector.
To this end, the ministry is undertaking several measures, including:
- Finalizing the Cooperatives Bill No. 7 of 2024 aimed at enhancing good governance and providing a legal framework for collaboration between national and county governments.
- Amending the Sacco Societies Act to facilitate the establishment of a Central Liquidity Facility (CLF) and a shared services platform.
- Operationalizing the Deposit Guarantee Fund (DGF) to protect member funds.
In the evolving financial landscape, we must remain alert and responsive to the changing needs of members. Smaller Saccos, in particular, would benefit greatly from mergers. Pooling resources, skills, and member bases will enhance operational efficiency, provide broader service offerings, and create a competitive advantage through economies of scale. Mergers will ensure that Saccos can sustain growth, enhance resilience, and offer better returns to their members.
To thrive in the modern era, Saccos must embrace technology because digital transformation is no longer optional; it is a necessity. However, technology can be expensive and ever-evolving, requiring frequent upgrades and changes that may be unaffordable. This calls for the use of shared ICT platforms, which can help reduce operational costs while improving efficiency and service delivery.
By Hon. FCPA Wycliffe Oparanya, EGH, Cabinet Secretary in the Ministry of Cooperatives and MSMEs Development.
