SACCOs: Act to be Amended to Link them With CRBs

SACCOs (Savings and Credit Cooperative Societies(SACCOs), known as private clubs owned by members may soon be forced to share both positive and negative credit information on their members with Credit Reference Bureau(CRBs)

This is as soon as the SACCO Act is amended to allow this arrangement to take place.

While Section 54 of the SACCO Act requires SACCOs to share negative, no provisions to the SACCO Act have ever been made to give life to this provision. Sharing of positive information remains optional, another gap in this legal framework.

Although regulatory provisions allowing Saccos to share credit information were introduced in the Banking (Credit Reference Bureau) Regulations, this does not provide a seamless regulatory framework for Saccos that are governed under the Sacco Societies Act.

According to report by a Committee of Experts, appointed by Cabinet Secretary for Cooperatives and SMEs Development, the fact that Sacco Societies Act provides for mandatory sharing of negative information and voluntary sharing of positive information is inconsistent with best practices in credit information sharing and greatly disadvantages borrowers in the Sacco movement who pay their loans well.

Sharing of positive credit information offers advantages to the customers by improving their credit scores. This advantage is available to customers of credit from institutions licensed by the Central Bank of Kenya which are required to share both positive and negative information.

This apparent discrimination against consumers of credit in the Sacco sector becomes even more pronounced as the Government makes efforts to implement Risk-Based Credit Pricing, which promotes preferential credit terms for low-risk consumers of credit. It is important to note that most credit customers are good payers as the percentage of non- performing loans is usually a single digit hence the majority who are good need to benefit from their good repayment histories.

This is also in line with Article 35 of the Constitution of Kenya which guarantees the right of access to information, giving Citizens the right to access information held by the state or by other people that is necessary to exercise or protect their rights or fundamental freedom.

Ensuring this right is appropriated by these customers will enable them advance their economic rights while protecting themselves against discrimination based on perceived credit risk.

There are no legal structures for SACCOs to share info on members with CRBs

There is no clear guidance on participation of Authorized Saccos in the CIS mechanism. Developments in the Sacco environment, such as the introduction of Authorized Saccos have not been clearly articulated in the Banking (Credit Reference Bureau) Regulations, further complicating the situation in the Sacco sector.

According to recommendations by the Committee, there is need for amendments to The Sacco Societies Act Section 2 to make it mandatory for SACCOs to share any positive or negative information bearing on an individual’s or entity’s credit worthiness, credit standing, credit capacity, to the history or profile of an individual or entity with regard to credit, assets, and any financial obligations.

In order to avoid multiplicity of regulations, the Committee recommends that SASRA and CBK jointly release a new set of Regulations that recognize the credit bureaus licensed by the CBK as the focal point for data shared by institutions licensed/authorized by both regulators.

In addition, the regulations should provide for uniform requirements for data sharing by both categories of institutions.

Credit reporting is governed by CBK-issued CRB Regulations (the latest was 2020, which was subsequently nullified by court). Under the 2013 (pre-2020) rules, only financial institutions licensed under the Banking or Microfinance Acts were mandated to share data.

SACCOs were not included by law and had no explicit CRB obligations. The 2020 CRB Regulations (now void) had specifically authorised SASRA-regulated SACCOs to submit and access credit information.

Currently, however, legal ambiguity remains. In practice SACCOs have limited credit-sharing, and legislative backing is needed to fully integrate them into the national credit-information system.

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