By Co-op News Reporter
All Non-Deposit Taking SACCOs or those engaged in Back Office Service Activity(BOSA) will be required to maintain a core capital of not less than KSh 5 Million after the SACCO SOCIETIES (NON-DEPOSIT-TAKING BUSINESS) REGULATIONS, 2020, takes effect on June 30th, 2021.
Only Non-Deposit-Taking Savings and Credit Co-operative Societies with deposits worth more than KSh 100 million will be licensed and supervised by Sacco Societies Regulatory Authority (SASRA).
Core capital refers to the minimum amount of capital that a financial institution, including a Non-deposit Taking SACCO, commercial bank, or a Deposit-Taking SACCO, must have on hand to safeguard members or customers against unexpected losses.
Core Capital’s ratio to Total Assets will be 8%, and minimum liquidity ratio of 10%.
The new rules limit insider lending to staff and directors of non-deposit-taking Saccos at 10% of the loan book.
The latest figures indicate more than 2,286 Non-Deposit taking SACCOs operating in Kenya, holding over KSh153. 2 billion in assets as of 30th January 2020.
These new regulations for those running Back Office Service Activity published by Cabinet Secretary Peter Munya require that all non-deposit-taking SACCOs be issued with new permits by SASRA.
At present, SASRA is the watchdog for the more than 175 DT-SACCOs, some with bigger balance sheets compared to some tier three commercial banks.
The Core Capital for those in the non-deposit-taking business must also not be less than 8% of the particular society’s balance sheet size.
At least 50% of the KSh 5 Million must be composed of retained earnings and disclosed reserves and not less than 5% of the total non-withdrawable deposits held by the Sacco Society on behalf of its members.
Deposit-taking SACCOs require one to open a savings account and deposit money that can easily be withdrawn, similar to commercial banks.
But, non-deposit-taking Saccos require one to buy shares into the SACCO and become a member and save – but cannot withdraw it unless leaving the SACCO.
SASRA will also require a completed “fit and proper test” form, specifying members of the society’s Board of Directors; supervisory committee; chief executive officer; senior management staff including heads of the information, communications and technology officer, the internal audit officer, the credit management function and the finance officer function.
Non-Deposit-Taking SACCOs also have until June 2021 to submit a three-year business plan and feasibility study of the society, a certified extract of minutes of the general meeting resolution authorizing the Sacco society to carry on specified non-deposit taking business, and certified copies of the SACCO’s audited financial statements for the preceding three years.
The Regulatory will then do an independent onsite inspection to ascertain if the non-deposit-taking Sacco has the appropriate institutional infrastructure, a Management Information System, appropriate risk management policies, and internal control systems.
A non-deposit-taking Sacco shall not later than the 30th November of every year submit to SASRA and an annual authorization renewal fee of KSh 30,000 for the society’s head office and KSh 10,000 renewal fee for each of the society’s authorized places of business.
Other submissions include society’s annual data and information specifying society’s operations and performance.
Previously, Back Office Service Activity (BOSA) SACCOs have been under the supervision of an overstretched and underfunded Office of Commissioner for Co-operative Development.
“The law is already there for those SACCOs that run Front Office operations. There are provisions under the SACCO Act, which gives the Cabinet Secretary the mandate to expand the regulatory framework of SASRA, and this is what we have done,” said CS Peter Munya.
But even as the clock ticks on the six-month deadline for all the KSh 100 Million BOSAs to comply, there are concerns that many of these societies may not meet the timelines.
There are fears that many BOSAs could not raise minimum share capital levels for their members to meet the new core capital threshold.
Concerns were also raised on whether these non-deposit-taking SACCOs can attract a qualified audit team within their Supervisory Committees.
The rules on non-deposit-taking Sacco business are also dead silent on assisting these BOSAs with money laundering and terrorism financing.
Non-deposit-taking SACCOs with capacity challenges are expected to outsource auditors’ services while using both the Society’s internal and external auditor to assist where necessary.
The rules governing qualifications for a CEO have also been left out because this is considered as purely a board issue, a contractual arrangement between the board and the CEO and therefore cannot be regulated, said a senior official at the State Department for Co-operatives.
Non-Deposit-Taking Saccos seeking a license of SASRA will be required to pay an application fee of Sh3,000 and a one-off authorization fee of Sh 50,000. Those licensed will be required to pay an annual fee of Sh 30,000 and Sh 10,000 as new branch opening authorization fees.
A fine of KSh 500,000 is to be heaped on anyone found operating a non-deposit- taking business without authorization.
Following the gazettement, it will take six months for SASRA to approve a new application.
The publication of the SACCO Societies (Non-deposit taking business) regulations, 2020, took effect on January 1, 2021.
SASRA chairman John Munuve said BOSA Saccos have to comply before they are authorized to operate, adding that this will improve the sub-sector’s stability and resilience.
