SACCOs in Kenya might finally have a deposit protection fund(DPF) similar to that enjoyed by banks, 5 years after Kenya’s Cabinet approved amendments to the Savings and Credit Co-operative Societies (SACCO) Act, to make this happen.
The Fund seeks to establish a deposit insurance fund to protect members of collapsed SACCOs, incubated within the Kenya Deposit Insurance Corporation.
The process of setting up the DPF has been tasked to the Sacco Societies Regulatory Authority(SASRA), working closely with the Kenya Deposit Insurance Corporation within the Joint Forum of Financial Sector Regulators, which is contained in the Committee of Experts report, recently presented to President William Ruto.
Sources at SASRA have indicated that all required changes to the law has received approval from the Cabinet.
SACCOs yet to agree on modalities of appointing Trustees to the Fund
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.
Suppose a member has unpaid loans or has been given credit facilities that have yet to be settled. In that case, the member or guarantor’s deposits, as the case may be, will repay the loan or credit advances before any payments from the deposit guarantee fund is paid for the protected deposits.
A member of a Sacco Society that has become insolvent can lodge a claim with SASRA for payment out of the Deposit Guarantee Fund of any protected deposits which would but for the insolvency, have been paid had this member demanded it from the insolvent Society.
The amended SACCO Societies Act states that the Deposit Guarantee Fund will be run by a Board of Trustees comprising the Chair and CEO of SASRA, Principal Secretary at the National Treasury, CBK Governor, Commissioner for Co-operatives and four members nominated by SACCOs and appointed by the Treasury CS.
The Board will be chaired by a person elected among its members.
The SACCO deposit Guarantee Fund shall be financed through contributions from SACCOs, investment income, borrowings, donations and grants.
The Board of Trustees will, before paying any claim lodged, require the claimant to furnish such documentary proof to support such claim from SASRA.
The Board of Trustees can decline to settle any claims to any person it suspects had any role in bringing down the SACCO or stood to benefit from its demise.
The fund’s trustees can also inspect a SACCO to determine the value of its protected deposits or type.
A claim to a member of a collapsed SACCO can only be paid two years after the Board of trustees begins the process. A claim brought a year after the Board of Trustees begins the process will not be allowed.
All Sacco Societies will be contributors to the Deposit Guarantee Fund and shall pay such an annual amount into the Deposit Guarantee Fund. At such times, the Board of Trustees and the CS may determine and publish in the Kenya Gazette. This amount and the period will not be more than 21 days after a notice is issued to the SACCO Society.
A Sacco society which for any reason, fails to pay its contribution to the Fund within the period specified in a notice issued will be liable to pay to the Fund a penalty interest charge not exceeding one-half per cent of the unpaid amount for every day outside the notice period on which the amount remains unpaid.
If it appears to the Board of Trustees that the affairs of a Sacco Society are being mismanaged, the trustees may require the affected Sacco to make more contributions than the amounts gazetted.
This section of the law will serve to check influential SACCO board directors, who wield enormous clout in the Society and involve themselves in running daily operations of a SACCO-which is against the law.
The law also requires that the Board of Trustees submit to the Cabinet Secretary a report on the Deposit Guarantee Fund’s operations within three months after the close of each financial year. f passed into law, members with deposits in collapsed Saccos will be compensated to the tune of KSh 100,000
The latest Society to collapse due to mismanagement by its top officials and directors is Metropolitan National SACCO, which went under with cash belonging to depositors.
According to Macloud Malonza, Chairman of the Board of Harambee Sacco-considered the fourth largest in Kenya, there is a need to protect deposits of members and that is why the DGF is being created.
“We are coming up with DGF and the Central Lending Facility so as to boost confidence of members who put their money in Saccos. The idea is to build confidence in the Sacco sub sector,” said Malonza.
He said that while there are Saccos that are collapsing due to mismanagement, there are also those that are unable to survive because the feeder companies where their members are drawn, is unable to sustain themselves.
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