MPesa-based sacco in trouble for taking deposits

Corporate News

A customer uses M-Pesa: Digital Sacco has been using the mobile money transfer service to take deposits from members. PHOTO | FILE 

By DAVID HERBLING AND SIMON CIURI

In Summary

• The Sacco Societies Regulatory Authority has warned investors against dealing with Digital Sacco, which collects members’ deposits and disburses loans via M-Pesa.
• The sacco, which launched operations last month, has styled itself as a virtual co-operative with no paperwork where people can use their mobile phones to sign up as members and access their accounts via M-Pesa.
• By end of last week the sacco had signed up 10,000 members with Sh10 million in member contributions.

Sacco industry regulator has raised the red flag over the emergence of a mobile money-based credit union dubbed Digital Sacco, warning that the entity is not licensed to take deposits or transact sacco business.

The Sacco Societies Regulatory Authority (Sasra) last week warned investors against dealing with Digital Sacco, which collects members’ deposits and disburses loans via Safaricom’s mobile money platform M-Pesa.

“It is not licensed with Sasra. Members of the public must be wary of this and not put their money there,” Sasra’s acting chief executive John Mwaka said.

“What they are doing is not within the regulations of the co-operative movement. This is a big mistake. Our legal team is looking into it and swift action will be taken.”

Digital Sacco has styled itself as a virtual co-operative with no paperwork where people can use their mobile phones to sign up as members and access their accounts via M-Pesa.

It launched operations last month and had by end of last week signed up 10,000 members with Sh10 million in member contributions. The founders of the firm said they had disbursed more than Sh1 million in loans.

Sasra authorises savings and credit cooperative societies (saccos) to operate nearly the same way as banks. The list of services offered includes deposit taking, disbursement of loans, issuance of bankers’ cheques and salary processing.

Saccos are also required to maintain core capital of not less than Sh10 million.

Those found culpable of running a deposit-taking sacco business without a licence from Sasra face a Sh500,000 fine and a three-year jail term. Other unions operate under the Co-operative Societies Act and are not allowed to mobilise deposits from the public.

Digital Sacco was founded by Andrew Mbuya and Dennis Makori, the owner and managing director of Onfon Media Group.

Members make monthly contributions through M-Pesa paybill number 542431 while loans are disbursed straight to members’ mobile wallets via M-Pesa.

The sacco charges a one-off Sh200 registration fee, meaning the founders have so far raked in Sh2 million from the 10,000 members recruited so far.

Members qualify for emergency loans equivalent to 80 per cent of deposits saved – and the loans must be repaid within a month at an interest rate of five per cent.

Digital Sacco also offers development loans priced at 1.25 per cent per month on a reducing balance. Members are eligible to borrow up to three times their deposits with a repayment deadline of 48 months.

“You nominate your guarantor for a loan through mobile phone where he or she receives an alert through a text message,” said Mr Makori, adding that he had registered Digital Sacco with the Kenya Union of Savings and Credit Co-operatives (Kuscco) – a lobby group – to help members of the public save and access credit at affordable rates.