Sacco Societies Regulatory Authority (Sasra) CEO John Mwaka. FILE PHOTO | NMG
Kenya’s famed co-operatives sector appears to be growing in the
middle of turbulence arising from failure to comply with some regulatory
requirements.
For instance, a recent report by sector
regulator said more than 100 deposit-taking savings and credit
co-operative societies (saccos) did not meet the mandatory capital ratio
requirement in 2016, raising questions over their fitness in the key
credit market.
The Business Daily spoke to
the Sacco Societies Regulatory Authority (Sasra) chief executive, John
Mwaka, on the state of the industry and what the agency is doing to keep
it in shape. Here are the excerpts:
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You recently released a report showing that more than 100 deposit-taking savings and credit co-operatives
(Dt-saccos) did not meet the mandatory capital ratio requirement in
2016. Will you suspend and eventually withdraw licences of the
defaulters?
The statement is not correct. The
correct position is that there are four capital adequacy requirements to
be met by Dt-saccos in accordance with the law. The emphasis is usually
on core capital, capital to total assets ratio and capital to total
deposits ratio.
The report showed that 168 Dt-saccos
out of 175 were fully compliant with the core capital requirement of a
minimum Sh10 million; 144 Dt-saccos out of 175 were fully compliant with
the core capital to total assets requirement of 10 per cent and 169
Dt-saccos were fully compliant with core capital to total deposits
requirement of eight per cent.
The conclusion in the
report is that the Dt-saccos sector is financially stable and sound as
required by law. The last ratio of institutional capital to total assets
is the one that was not met by a majority of the Dt-saccos.
Regulatory
definition of core capital includes institutional capital and as
indicated above, less than 10 saccos were non-compliant with core
capital to assets ratio. It is inaccurate to measure financial soundness
of saccos based on institutional capital alone.
Technically,
the only avenue available for saccos to build institutional capital is
to retain surpluses. This explains the slow level of compliance with
this ratio as loan assets are growing faster than the earnings.
The
authority shall be engaging stakeholders on the continued relevance of
this ratio. Dt-saccos remain stable and viable alternative source of
credit financing to Kenyans; and their fitness cannot be questioned.
ALSO READ: Savings hitches hit sacco loans
One
of the sanctions prescribed in the Sasra Act is that saccos can be
barred from declaring dividends or increasing staff salaries until they
comply. Critics have said you have avoided such sensitive measures for
negotiation. Are you abetting non-compliance?
Sasra
does not abet non-compliance at all. All the annual financial
statements of Dt-saccos are always considered and approved on a
case-by-case basis, with specific comments and directives before they
are presented to the members.
Sasra has always issued
appropriate administrative directives to ensure the saccos maintain
compliance. Prohibition from declaring dividends and restrictions in
increase of salaries are some of the sanctions prescribed in law.
Sasra
has several times utilised these sanctions, together with restrictions
of payment of dividends or interest on deposits without fear or favour.
A
February report by Financial Sector Development trust, a not-for-profit
institution that conducts financial sector research, warned that most,
if not all, Saccos are currently operating high-risk models that are
prone to liquidity fluctuations, citing the rampant failure to monitor
or report loan defaults that ultimately expose them to systemic risk of
insolvency. What are you doing to address this?
That
FSD Africa report was completely inaccurate. The author is certainly
not conversant with sacco sector operations. On the issue of
non-performing loans, the authority receives, analyses and reports
performance on a quarterly basis. As shown in the 2016 report, the NPLs
for the sector were just 5.23 per cent, which is commendable by any
standards.
This ratio is on gross terms as the value
of borrowers’ deposits held as collateral has not been adjusted as it is
generally the practice in financial regulation. This provides another
layer of protection from insolvency. On aggregate, sector liquidity
stood at 49.5 per cent in 2015 against the minimum of 15 per cent, which
is commendable.
The
need to stay afloat has seen many saccos recruit more members instead
of adopting stringent systems of control to guide lending, making them a
ticking time bomb. How are you addressing this?
Saccos
only transact with their members. What this means is that under the
sacco model, a person must become a member first, then save before they
can access credit based on the savings.
Saccos do not
recruit members today, and lend to them tomorrow. In fact, many sacco
by-laws require a person to save for a minimum of six months before they
qualify for any credit.
Consequently, a substantial
amount of lending by saccos is always backed by the savings as
collateral and thus the most secure way of advancement of credit.
Secondly, credit advanced by saccos is always co-guaranteed by a minimum
of three other members of the sacco.
These members
must also be having sufficient savings to cover the amount lent to the
principal borrower. This is the second level of assurance of credit
repayment under the sacco model, making the risk of loan default very
low.
bnjoroge@ke.nationmedia.com
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