The Central Bank of Kenya(CBK) plans to put an estimated Ksh 180 million into a Deposit Guarantee Fund (DPF), a safety net designed to compensate those who lose cash in collapsed Savings and Credit Cooperative Societies(SACCOs).
According to a recent Cabinet proposal, Parliament has been given the greenlight to amend existing SACCO laws, to create this fund, similar to the Deposit Protection Fund (DPF) in the banking industry. This CBK’s cash will provide the initial capitalisation to set up the Fund during its initial first four years of operation.
The Deposit Guarantee Fund will be under a Trustee and oversighted by the SACCO Societies Regulatory Authority (SASRA).
“The presence of a deposit guarantee fund will have the effect of boosting the confidence levels of those who have deposited their money in the SACCO. The overall effect on the industry can be compared to a situation where a passenger is travelling in a matatus that has an accident insurance cover. This particular passenger will feel more comfortable and less vulnerable, said Marete, outgoing Chief Executive Officer, Solution DT Sacco based in Meru County.
> NCBA Bank Enhances Asset Financing Services With Mobikey Deal
He told Business Today that at present, members who lose their cash in a collapsed SACCO receive no compensation and have to wait for a lengthy liquidation process, which could take years in court.
Latest attempts to secure SACCO depositors comes at a time when SACCOs that lost heavily in the now insolvent Kenya Union of Savings and Credit Cooperatives Union(KUSCCO), are making huge provisions in their books so as to cover for lost deposits and investments made in the Union.
“What the Deposit Guarantee Fund is bringing on board is boosting the confidence levels of SACCO members,” said Mr David Mategwa, National Chairman of the Board, Kenya National Police DT SACCO Limited. “This will provide an insurance cover, similar to the arrangement that is enjoyed by those who put their deposits with commercial banks.”
Financial cooperatives have grown in size and are playing in a larger space hence the need for a deposit guarantee fund to cover the risks involved, he added. “Appointment of a liquidator to undertake this process is one that is undertaken by the Commissioner for Cooperative Development.”
While the SACCO industry has welcomed plans to create a compensation fund, there are those who feel that setting up this safety net is not the only pill to cure the problems in SACCOs.
“We are wondering what will happen if a SACCO that contributes to this fund does not experience any problems. This is because we will be contributing to the fund and this could affect the cash flow of smaller players like us,” said Evelyn Moraa, Chief Executive Officer, Sotico DT Sacco Limited.
Ms Moraa said authorities should concentrate on is addressing the causes of poor governance as well as ensure strict supervision of the sub-sector. “Setting up this fund could only encourage those unscrupulous people put in charge of SACCO deposits to mess up, knowing only too well that those members who lose their deposits will be compensated,” she said.
> Airtel Partnership Seeks to Boost Digital Transformations
She added that the integrity of those put in charge of the Fund, which includes the regulator, should be beyond reproach. “This board of trustees should have a wider mandate beyond collecting money from SACCOs,” said Ms Moraa.
She said SACCOs still experience enormous governance challenges and this is where the main focus should be put. “ If the control system is weak, SACCOs will still lose money to corrupt individuals, who will manipulate the legal system to protect their ill-gotten wealth,” said Ms Moraa.
The SACCO Act Section 55 provides for the establishment of a Deposit Guarantee Fund for the SACCO sector to provide compensation for loss of members’ deposits but not shares up to Ksh 100,000 in the event the Society collapses. This amount will be the total account balance minus any liability that a member owes the SACCO and will be treated as a protected deposit.
A member’s deposits will settle any liabilities owed by the Sacco Society under liquidation, including any liability under a loan guarantee by such a member.
Leave a comment