SACCOs Shut Out of the National Payments System Over Delays in Reviewing SACCO Act

SACCOs(Savings and Credit Cooperative Societies), especially those that offer Front Office Service Activity(FOSA), are struggling to keep up with growing competition in the financial markets.

This follows delays by Parliament to speed up amendments to the SACCO Act  No. 14 2008, allowing for the establishment of a liquidity platform-which will enable SACCOs engage in inter- lending transactions, access overnight or short-term loans and participate in the cheque clearing house.

This SACCO Act provides the main legal framework and instruments that guide the operations of all licensed Deposit-Taking and Non-Withdrawable Deposit- Taking SACCOs in Kenya.

Further, a move to publish a sessional paper for the Cooperatives Sector and pass a new Cooperatives Bill, has yet to see the light of day. This follows disagreements between the Senate and Parliament over amendments proposed in the yet to be enacted Cooperatives Bill 2024.

While the SACCO industry struggles with liquidity challenges, industry leaders still have enormous optimism that the sector will soon have a new Cooperatives Act, amendments to the SACCO Act as a new dawn.

“At the moment, we have alot of goodwill in the sector and what we need is more public participation, consultations between stakeholders and players as well as harmony. Presently, what is being witnessed is a lot of misinformation from numerous disjointed forums, some dissemination information that is not well researched or factual,” said Joyce Waceke Ndegwa, Mentor SACCO Chief Executive Officer.

Many in the industry observe that the reason legal reforms in the SACCO sector have stalled, is due to ‘vested’ interest groups, each competing for a share of the KSh 1.5 trillion worth Cooperatives industry.

Benefits to SACCOs up joining the Cheque clearance house

“If SACCOs join the National Payments System, they will be able to grow their deposits, loans disbursed, membership. We still have headroom in bringing more members to join SACCOs. While this proposal has been in the works for years, things have really moved fast and are now at very advanced stages and nearing operationalization, which will be sooner than later. Access to the National Payments System will also allow those in the diaspora to wire money directly to SACCOs here in Kenya,” said Mr David Mategwa, Kenya National Police SACCO National Chairman.

Worldwide, credit unions have access to liquidity facilities that enable lending and borrowing among themselves, making it cheaper and convenient to obtain cheaper funds for onward lending to members.

“The New Cooperatives Act that is coming up soon seeks to address numerous legal challenges and regulatory gaps that exists in the sector, including a framework to deal with governance challenges in secondary cooperatives societies, like what happened in KUSCCO,” said Mrs Ndegwa.

She adds that the sector has competent forums, such as those involving SACCO CEOs, boards and members where discussions and public participation exercises can be undertaken when doing policy or regulatory changes in the Cooperative sector.

“The Cooperative Bill is coming up due to goodwill from the Kenya Government. The new bill will improve on Cap 490, enabling SACCOs to do better than they are doing. Allowing SACCOs into the National Payments System for instance, has enormous benefits for SACCOs in terms of service delivery to members such as clearing of cheques without going through a bank. The Cooperative sector has huge assets and a large membership so that any changes in the industry has the potential to affect the entire economy,” said Mrs Ndegwa.

Access to the National Payments System will allow SACCOs that have FOSA to issue and clear their own cheque and process personal cheques. These Societies will also offer members various other services such as Trade, Treasury Management, Electronic Funds Transfer (EFTs) and Real Time Gross Settlements (RTGS).

At present, these services are offered by SACCOs to members, via Commercial Banks, at a fee through third-party arrangements.