SACCOs (Savings and Credit Cooperative Societies) have given the Nairobi Securities Exchange(NSE) a wide berth, owing to a legal vacuum and an outdated law that denies them the opportunity of listing at the bourse.
Compared to listed firms that are able to float a bond or commercial paper to raise cash, SACCOs rely purely on internal sources including doing share drives through selling more shares to members. The only other option if to go for more expensive loans from banks.
“The Coop Act allows SACCOs to only raise capital from internal sources. So there is a lot of work to be undertaken before we can list at the NSE. SACCOs are members-only social enterprises made up of groups of individuals who have come together with a common goal. Therefore, going to the NSE for capital will change the cooperative business model entirely,” said David Mategwa, Board Chairman, Kenya National Police Deposit-Taking SACCO.
He said that while many initiatives are underway to enable Societies trade their shares at the NSE, including recommendations made by a Committee of Experts appointed by the Government, it is still early days. “We will cross that bridge when we reach there. We will then have clear policy guidelines worked out to enable SACCOs to list,” said Mategwa.
As matters stand, while these Societies are best suited for Growth and Enterprise Market (GEMS) segment of the NSE, owing to the little share capital of KSh 40 million, the restrictive Cooperative Act is still a major stumbling block.
“The fact that the Cooperatives Act does not provide for transferability of shares owned by members, does not require full disclosures, quarterly financial statements or even regular audits makes SACCOs not eligible for listing at the exchange,” said an official from a leading investment and stockbrokerage firm.
SACCOs Cannot List Unless They Convert to Companies
He said while SACCOs can list at the NSE; certain amendments must first be made to the Cooperatives Act for this to happen. The Cabinet Secretary for MSMEs and Cooperatives, can also give waivers to allow Societies to list.
The NSE said it has crafted a special team to specifically reach out to Societies through creation of awareness on the capital markets investments products and financial literacy programmes, in addition to laying the groundwork for the listing of SACCOs
“The endgame is that we want to have solutions, products and activities that are SACCO-centred and what will inform our biggest win as a nation and as an economy would be the day we are able to have SACCOs trading their shares in the open platform,” Jackson Kiminje, NSE’s business development leader in charge of retail, SACCOs and Chamas.
“SACCOs hold strategic importance in the financial ecosystem due to their rural presence and community trust position. While they are powerful vehicles for inclusive growth, many SACCOs remain constrained by outdated technology and governance gaps, “said a recent report by Standard Investment Bank(SIB).
The Investment Bank recommends targeted support for SACCO digitisation, shared infrastructure, and supervisory reform so as to create an alternative inclusion pathway alongside mainstream banking.
Plans to Establish a Trading Floor for SACCOs Remains on Paper
While the Ministry in close consultation with various stakeholders has been seeking for ways to make the cooperative shares transferable and appreciate in value with the level of cooperative business, the eagerly awaited establishment of Cooperatives shares trading platform at the NSE, remains a plan on paper.
Listing of SACCOs will enable members to freely transfer their shares and get value. This will also attract other investors to the Cooperatives sector.
The inability to raise cash in the debt market using instruments like commercial paper or bonds has a lot to do with the way SACCOs are structured. For instance, it is difficult to list at the exchange when books of a SACCO are never closed, meaning it can recruit new members anytime.
For a trading platform at the NSE to be set up, a review of the SACCO Act must take place. A Society interested in listing at the NSE must change its Articles of Association and convert from a private members’ club to a public entity, before it can raise money from the public.
Current SACCO Laws Remain Restrictive
Credit Union by-laws restrict membership to only those who own shares. This means a SACCO cannot list at the NSE, a prospect that could open up its shares to non-members.
Unlike commercial banks or microfinance institutions, SACCOs are limited in how far they can expand their operations, beyond the boundaries set out in the SACCO Act.
CMA is required to issue guidelines to allow Saccos to issue commercial paper or bonds- instruments that are non-tradable. At present, the law is restrictive on who should deposit or borrow from a SACCO.
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