The Cabinet Secretary responsible for Co-operatives and Micro, Small and Medium Enterprises Development, Simon Chelugui, has explained the activities of the Kenya Union of Savings and Credit Co-operatives (KUSCCO) Ltd and the ongoing investigation to uncover any illegal undertakings by the Union.
The Ministry became concerned that KUSCCO was operating an unauthorized deposit-taking business, allegedly carrying out regulated Sacco business without proper licensing or authorization as required by the Sacco Societies Act No 14 of 2008.
Mr. Chelugui stated that the Ministry had identified several issues with KUSCCO, including its inability to discharge fixed deposits as they fall due, diversification into non-core activities, and investing its Central Finance Fund (CFF) in non-core activities such as housing, insurance, and mortgages, making the Union unable to meet its obligations. Consequently, this led to a panic withdrawal by members over the past four months.
The CS had directed the Sacco Societies Regulatory Authority (SASRA) to investigate the Union’s activities and policies. SASRA gave an interim report, but the investigation was stopped through a court order in November last year after the Union’s former management sought court orders to stop the probe, alleging that SASRA does not regulate KUSCCO but is under the Commissioner of Co-operatives Development. In a letter addressed to KUSCCO, SASRA said that union members had expressed concern about being left out of its regulatory oversight despite holding close to Ksh 20 billion in members’ funds and savings.
The Ministry then directed the Commissioner to inspect the Union’s status. Initial findings show that KUSCCO commingled its funds with various projects without clear terms and invested its Central Finance Fund irregularly in non-core activities without clear policies on how the funds would be scooped back, thus creating cash challenges.
The CS said the Ministry undertook remedial actions, including changing management, reorganizing the board, and starting a special audit through reputable firms into the Union’s past activities and policies over the past three years, which will give actionable recommendations.
“These interventions are aimed at restoring the union members’ confidence. Once the investigations are over and members’ funds are found to be misappropriated, then firm action will be taken against the concerned individuals,” said Mr Chelugui.
KUSCCO is one of the co-operative sector apex bodies founded in 1973 as an umbrella union of Saccos with the mandate of promotion, advocacy, and training. It has a membership of 4,168 Saccos, with a share capital of Ksh3 billion, Ksh5.2 billion in deposits and savings, and Saccos’ special deposits amounting to Ksh13.7 billion.
The Union has diversified its business to include savings and deposit mobilization, lending, housing, and insurance services. The Government is reviewing the Co-operatives Act to enhance governance in primary co-operatives, unions, and federations to ensure they stick to their business scope.
The CS said they want to make sure that co-operative audit committees are empowered. “We are reviewing the Sacco Societies Act to provide regulations for unions taking deposits and how they are investing them.” According to him, the Ministry will operationalize the Deposit Guarantee Fund to ensure a shilling in a Sacco is as safe as a shilling in a bank, in addition to providing core shared services through the Sacco Central so that Saccos with excess liquidity can support Saccos that are facing cash challenges.
“The Ministry will institutionalize good governance, and Board of Directors are entrusted with members’ funds; thus, they should uphold best practices at all times. We will introduce a new bill to enforce good governance, and SASRA and the Commissioner have firm instructions not to turn a blind eye while members’ money is being misappropriated. SASRA has been given power to go beyond non-specified Saccos to ensure they follow the law,” said CS Chelugui.
In a recent statement, KUSCCO said it is committed to accountability and transparency, and it would continue to abide by the relevant existing laws and carry out its mandate to lobby for improved legislation for the benefit of its members.
The Union reassured the public that all its activities are in service of its core mission, which includes providing market-driven products for its esteemed members. “Subsidiaries operating under the KUSCCO umbrella exist for this sole reason. Additionally, we have robust leadership structures and resources, and we will continue playing an oversight role to ensure that we are meeting members’ needs to the highest possible standards and operating within applicable law,” said KUSCCO in a statement.
Last year, the co-operative movement grew by over 12%, with total assets of Ksh1.5 trillion and Ksh1 trillion in loans, according to government data. The Sector holds over 30% of national savings. Kenya’s co-operative movement is ranked number one in Africa and seventh globally.
