The role of Kenya National Federation
of Cooperatives was to promote co-operative development; unite the cooperative
movement; and represent cooperative interests on all matters of policy and
legislation. Its overriding role was to be the spokesperson of the cooperative
movement in Kenya. KNFC was the apex of cooperative
societies, whose membership included national co-operative organizations as
well as some co-operative unions. It is through KNFC that the Kenyan
co-operative movement is expected to be linked to the world co-operatives
movement[i].
Its main objective was to advance
the growth of an efficient cooperative movement and to reinforce governance,
transparency and accountability in the leadership of cooperatives[ii].
The KNFC broadcasts information in order to strengthen the corporate governance
through an interactive website and radio program. This is aimed at contributing
to development of strong and democratic member control for a vibrant and
sustainable cooperative movement[iii].
This will also popularize cooperative model as the preferred vehicle for
poverty alleviation, wealth and employment creation[iv].
Poor management, corruption and
ethnicity became the main driving force on election of the board directors at
KNFC. The Minister for Co-operative Development responded to the situation in
May 2005 by dissolving the KNFC’s board of directors following an inquiry
report that implicated the executive director in corruption and mismanagement.
The institution was bankrupt and its property had been looted[v].KNFC
was replaced by C.A.K (Cooperative Alliance of Kenya) that was established in
2009.
KUSCCO stands for Kenya Union of
Savings and Cooperative Ltd. Some of the products and services offered to
SACCOs by this body in Kenya are advocacy, risk management services, central
finance fund, training, consultancy, corporate affairs and marketing.
With regards to advocacy KUSCCO
plays a representative role as the support pillar to SACCOs in Kenya by
addressing the needs, concerns and challenges facing SACCOs. The key areas
of concern in its mandate are: unfair taxation, deduction codes, delayed or non
remittance of SACCO, unfair competition by other financial institutions in the
market and unjustified levies on SACCOs' and members' funds
KUSCCO has a Central Financial capital sourced from the regular deposits by SACCOs. It pays a reasonable interest on the deposits, which is disbursed quarterly to member societies. By subscribing to the KUSCCO Central Finance Fund, SACCOs in Kenya can enjoy the benefits from the fund’s products[vi] .
KUSCCO has a Central Financial capital sourced from the regular deposits by SACCOs. It pays a reasonable interest on the deposits, which is disbursed quarterly to member societies. By subscribing to the KUSCCO Central Finance Fund, SACCOs in Kenya can enjoy the benefits from the fund’s products[vi] .
KUSCCO provides advice and
underwrite risks for the cooperative movement by offering seamless hedging
solutions to SACCOs and their members in Kenya. These include Insurance
Covers like savings cover, loans cover, funeral rider, committee members and
staff covers.
For individuals, specific benefits are
its risk management services offered such as:
- Prompt settlement of all loan balances of an individual member upon death, event of total and permanent disability
- All subsequent new loans granted to members in any one given year are automatically covered without charging additional premiums;
- Payment of the members’ total savings and deposits balances upon death;
- Payment of agreed amount of funeral expenses for every deceased member;
- Settlement of all advance balances and payment package balances of an individual member upon death;
KUSCCO offers various education and training programmes, including Promotion of the education of savings and credit societies’ members in Kenya. The education and training programmes are delivered by various means, depending on the nature of the training and needs of specific SACCOs and trainees. Some of the methods used are: Lectures, case studies, experimental methods and hand-outs.
KUSCCO offers a wide range of
professional consultancy and advisory services to SACCOs throughout
Kenya. These services are delivered its Research and Consultancy Department,
which was established in 1998 to provide practical solutions to savings and
credit societies in Kenya.
The department of Corporate Affairs and
Marketing is responsible for the provision of strategic direction for KUSCCO,
media liaison, media monitoring, branding, marketing, advertisement, event
coordination, SACCO affairs, corporate internal and external communication,
recruitment of new SACCOs and affiliates, guest relations, and sourcing of new
business ventures.
SASRA is commonly known as the Sacco
Societies Regulatory Authority. It is a semi-autonomous government
Agency under the Ministry of Industrialization and Enterprise Development in
Kenya. It is a creation of the SACCO Societies Act of 2008 and was inaugurated
in 2009 and charged with the prime responsibility to license and supervise
Deposit Taking SACCO Societies in Kenya.
Some of the functions of SASRA
include the following;
Ø To license
Sacco societies to carry out deposit taking business.
Ø To regulate
and supervise deposit taking Sacco societies.
Ø To manage the
Deposit Guarantee Fund under the trustees appointed under the Act.
Ø To advise the
Minister on national policy on deposits taking Sacco societies in Kenya.
Further, it ensures the
implementation of the Sacco Societies Act and the Regulations put in place.
It has the challenging mandate of not only ensuring that the Sacco industry is
stable and more competitive but also ensure that it operates in a suitable
manner responding to the ever changing financial needs of the citizens of Kenya
and SMEs.
Specific licensing requirements for
Sacco[vii]
are as follows;
Ø Capital-
Sacco’s are required to provide a minimum capital of kshs 10 million as
reflected in their financial statements.
Ø Fit and
proper test- The director and the senior management of the Sacco are to be
subjected to this test with the aim of this test is to vet their moral and
professional suitability to be on the board.
Ø Business plan
- The Sacco should submit a four-year detailed and feasibility to study as well
as a projected financial statement.
The main licensing steps include:
Submission of the license application forms, Issuance of the letter of intent,
Inspection Issuance of a letter of compliance within another 30 days, Issuance
of the license at a fee, which needs to be renewed annually.
The sector plans under vision 2030 have
identified challenges that need to be addressed in the cooperative sector and
outlined the National Flagship projects and key support initiatives that are to
be taken to address the challenges. SASRA will contribute to the national
cooperatives sector flagship projects and support initiatives by developing and
implementing relevant programmes and activities in the following areas;
1.
The Authority will be responsible for the development and implementation of a
sound cooperative governance framework for the Sacco societies through
effective licensing and supervision and continuous review of the existing
regulations, policies and procedures.
2.
Increase Savings and Credit amongst the people.
3.
The authority will enforce the application of the management information system
practices in the delivery of services to members of the Sacco societies.
4.
Research development in the Sacco sub-sector.
5.
Education and training in the Sacco sub-sector.
WOCCU stands for the World Council of
Credit Union and
it promotes the sustainable development of credit unions aforementioned around
the world to empower people through access to high quality and affordable
financial services.
World council advocates on behalf of
the global credit union system before international organizations and works
with national governments to improve legislation and regulation. In Kenya
for instance the president signed into law a new legislation designed to
regulate and support the countries credit unions, known as SACCOS. The bill,
passed by the parliament in November 14 2008, was as a result of efforts by
WOCCU. The new legislation provides updated frameworks for SACCO safety and
soundness, as well as for the services they offer. The law grants the
establishment of a regulatory authority for the country's cooperative societies
that provide savings and credit services. It will bring greater order to a
segment of the financial services industry whose regulations were previously
lax. New regulatory provisions will establish a deposit guarantee fund, require
SACCOs to meet certain liquidity requirements to remain competitive and enable
SACCOs to offer money transfers and diversify revenue sources.
In addition World Council actively
monitors and participates in the policy development of international
organizations to ensure credit union interests are represented while global
standards are formed. It has published a number of resources on drafting
effective legislation, including Model Law for Credit Unions, Model Regulations
for Credit Unions and a technical guide to Credit Union Regulation and
Supervision.
WOCCU’s technical assistance programs
introduce new tools and technologies to strengthen credit unions’ financial
performance and increase their outreach. Its assistance programs have provided
millions of poor and low-income people access to the array of financial
services they need through credit unions, regardless of challenges posed by the
operating environment.
World Council works with credit unions,
their trade associations and regulators to drive savings mobilization and
regulatory development while creating integrated business networks. It works
with local leaders to develop tailored products and services geared toward
microfinance, rural finance and Islamic finance. Unlike many microfinance
technical assistance providers that focus exclusively on credit, World
Council's approach emphasizes the mobilization of member savings as the primary
source of financing. This savings-based approach allows credit unions to reach
greater scale in financial service provision and instills a level of financial
discipline that ensures long-term sustainability.
It and provides consulting services for
regulatory system development and legislative reform. World Council also tracks
international credit union statistics publishes the digital credit union world
magazine, sponsor’s international credit union statistics each October and
hosts annual regional technical conferences and the premier world credit union
conference.
Some World Council members participate
in World Council's international partnership program, which pairs credit union
associations, leagues and credit unions with an overseas counterpart to
exchange operational, outreach and advocacy expertise. World Council also
provides consulting for its member associations undergoing change in
cooperative or financial sector regulation.
WOCCU Services Group (WSG) invests in
the development of credit union products and services offered through local
service organizations that are jointly owned by individual credit unions and
their associations. Credit unions are able to offer members shared branching,
domestic and international remittances and cell phone banking services as well
as additional access points through automatic teller machines (ATMs),
point-of-sale (POS) devices at area businesses and personal digital assistants
(PDAs) used by credit union staff during member visits.
WOCCU has created a number of web based
and financial tools including its flagship PEARLS monitoring system, a set of
financial ratios or indicators that help standardize terminology among
institutions. The tools offer management guidance for credit unions and other
savings institutions and can serve as supervisory tools for regulators.
C.A.K is an acronym for Cooperative
Alliance of Kenya. It was registered on 22nd December, 2009, under
the Cooperative Societies Act, CAP 490 of 2004. It is worthwhile to note that
it came was the body that replaced Kenya National Federation of Cooperative
Societies(KNFC) that had been in existence since 1964, but had been dissolved
in the Kenya Gazette in 2009.
The C.A.K is the National Apex
Organization for Kenya’s Cooperative Movements. The Cooperatives Societies Act
defines an Apex Society as “a society formed at the national level by
the co-operative movement in Kenya and registered under this Act to promote
co-operative development and represent the interests of co-operative societies
locally and internationally.”[viii]
The cooperative movement in Kenya is
organized into a four-tier pyramidal structure that links up primary
cooperatives at the bottom, secondary cooperative unions, national cooperative
organizations and one confederation, CAK.
Membership of C.A.K includes national
cooperative organizations as well as some cooperative unions and primary
cooperatives not affiliated to any union. The movement has more than 14,000
cooperatives as members, and more than a million individual persons.
The role of C.A.K can be summarized as:
1.
It is through CAK that the Kenyan cooperative movement is linked to the World’s
cooperative movements.
2.
To lobby and advocate for a favourable policy and legal environment for
cooperatives
3.
The minister has to consult C.A.K in reference to membership of the Cooperative
Tribunal in Kenya when appointing three persons with at least ten years
experience in the field of cooperative management and practice as
required by Sect. 77 of the Act.[ix]
4.
The C.A.K also has a role to play regarding the Cooperative Development Fund as
provided in sect 90[x],
that the Minister may, in consultation with
the apex society, prescribe the manner of formation and
maintenance of the Fund.
5.
C.A.K is also consulted in making of rules for the better carrying out of the
provisions and the purposes of the Cooperative Societies Act.[xi]
Question B
SACCOs are unique co-operatives,
warranting a separate legal regime for their regulation. Evaluate the foregoing
statement, analyzing key provisions of this separate regulatory regime.
SACCO is an acronym of Savings and
Credit Co operative societies. It is a unique democratic member driven self
help co-operative, owned and managed by members[xii].
Usually, these members have a common bond e.g. working for the same employer,
social fraternity and work in the same community. A Savings and Credit
Co-operatives membership is open to all who belong to the group without
discrimination.
The members agree to save their money
together in the SACCO and to make loans to each other at reasonable rates of
interest. Interest is charged on loans, to cover the interest cost on savings
and the cost of administration. There is no payment or profit to outside
interest or internal owners. The SACCOs aims at meeting the financial needs of
all its members by encouraging savings and granting loans to the members.
Unlike cooperative societies, SACCOs
are involved in savings of members contributions and lending loans to the
members at fair rates as compared to commercial banks. Due to the high risks
business involved and the need for confidence and certainty on members’
savings, SACCOs warrants a separate legal regime to that of Cooperatives.
SACCO’s required to make monthly
reports of their capital adequacy. Regulation 53 requires the
establishment of an internal audit function and establishment of an audit
committee.
Other than Co-operatives Act, SACCOs in
Kenya are mainly regulated by:
a)
SACCO Societies Act No. 14 of 2008
b)
SACCO Societies (Deposit-Taking Sacco Business) Regulations 2010
The institution charged with regulation
of SACCOS in Kenya is SACCO’s Regulatory Authority (SASRA) established under Section
4 of Sacco Societies Act No. 14 of 2008 whose roles and objectives
are enumerated there under[xiii].
In ensuring strict adherence with the
rules,everySACCO Society is required to apply for renewal of a license at least
ninety (90) days before the expiry of its operating license in respect of its
head office and any other place of business. The expiry date for all licenses
is usually 31st December every year whether granted within the year or not[xiv].
Since SACCOs are involved in lending
and deposit taking from members, strict rules on liquidity policy needs to be
taken into account. Unlike co-operative which hold money on behalf of its
members at a period and later pays them at a particular time, SACCOs require
liquid money at disposal always as members borrow money at different times. To
ensure proper cash flow and liquidity arrangements,Section 13 (1) of Sacco
Societies Act vests the responsibility of formulating, reviewing and
adjusting the liquidity policy of the Sacco Societieson the Board of Directors
of the SACCO
In order for the SACCOs to avert the
liquidity crisis, section13 (2) of Sacco Society Act requires them to
maintain fifteen percent(15%) of its savings deposits and short term
liabilities in liquid assets[xv].
All loans in a Sacco should be classified and provided for[xvi].
Loan is a key asset of the Sacco and determines the operational success of the
Sacco, thus to ensure efficiency of the Sacco, the loan quality should be
paramount.
Since SACCOs operating a FOSA are
usually involved in credit transaction with members, Section 29 requires
them to have a written credit policy. This is unlike the Co operatives which if
involved in credit transaction usually supply their members with the products
and would later deduct from their proceeds after marketing especially in
agricultural co operatives. On the other hand, SACCOs are involved on this
business on daily basis and this warrants proper accounts and control. This
control can be done through development of loaning procedures and
documentation.
Advancement of loan facilities by
co-operative to its members is usually in form of good or farm inputs. This is
usually recovered or deducted in lump sum when the products are sold by the
co-operatives. In case of other co-operatives, the objects of the loan is
usually the reason for its formation and one does only what is required. With
regards to the SACCOs, one can borrow money for different reasons. This exposes
loans obtained from SACCOs to uncertainties and possibilities of default
payments. This necessitates SACCOs to have more strict rules. The SACCO Board
is required to determine their interest rates fees, penalties and ensure all
the loans granted are fully secured.
Unlike co-operatives, SACCO societies
can borrow each other to mitigate the short term liquidity crisis. This
necessitates a legal framework for control. Section 33 of SACCO
Societies Act allows Sacco Societies to borrow or lend each other for purposes
of funding for member loans financing temporary liquidity short falls. In case
of external borrowings, Section35 requires Sacco Society not to acquire
external borrowings in excess of twenty five percent of its total assets unless
the limit has been waived by the Authority. This ensures that SACCOs can repay
their liabilities and avoids possibilities of insolvency while assuring members
of continuity.
In case a SACCO society intends to
introduce a new loan product, Section 34 requires the society to seek
prior approval from the SASRA through an application. This is unlike the
Co-operative Societies who may introduce their preferred products any time.
Directors and Sacco Society employees
are also required not to use their position to further their personal interest.
All loans to them are supposed to be approved or ratified by the board of
Directors .The rates, terms and conditions of any loan made to an officer, his
immediate family member, or their business associates cannot in any way be
favourable than those offered to other Sacco Society members[xvii].
Ensuring that members of a SACCO
society benefits, activities listed in Section 15 of Sacco Society Act
are prohibits SACCO from certain acts like investing in enterprise capital
beyond the prescribed limit among others[xviii].
Any person who contravenes the
provisions of provisions under section 15 commits an offence and is liable on
conviction to a fine not exceeding one hundred thousand shillings or to
Imprisonment for a term not exceeding twelve months or to both. Additionally,
if a Sacco Society contravenes these provisions, it is liable to pay on being
called upon to do so by the Authority a penalty charge sanction of one hundred
thousand shillings. On the other hand, co-operative societies can engage in
such transactions provided that they are in the interest of members and well
provided in their agreement. This prohibition helps in reducing risk related
ventures and fraud.
SACCO Societies are also prohibited
from transacting business with non members[xix].
This is because the Societies are member-owned financial institutions and
created to serve the financial needs and interests of their members. This legal
nature accords them the fiscal benefits under the Income Tax Act (section 19A).
This provision requires SACCO Societies to deal with members only. Conditions
for membership are also required to be clearly defined in the by-laws of the
society.
Since SACCOs are involved in very risky
and intense business, the Act requires them to submit to SASRA SACCOs submit
monthly reports for scrutiny. This ensures professionalism and security of
investment of members since adherence to the guidelines will be
upheld.Moreover, SACCOs are required to appoint a chief executive officer who
will be on a monthly salary unlike today when co-operatives which are usually
managed by a mid-level manager overseen by elected officials. The CEO and other
managing staff are required to have skills necessary for running financial
institutions, most probably with post graduate education on financial issues.
This is because of the technical and risky nature of the SACCOs business.SACCOs
are also required to have an internal auditor in addition to an external one
unlike cooperative societies to facilitate proper management and seal any
possibility of mismanagement.
With SACCOs involvement in day to day
activities of receiving deposits, lending money and other banking activities,
proper legislative and infrastructural arrangement ought to be taken into
account. This is unlike co-operatives who utilize bank services while carrying
out their activities. In order to ensure security of members’ assets SACCOs are
required to facilitate technological platform by installing
required software that can generate the periodic reports required by
SASRA.FOSAs and deposit taking SACCOs are also required demands to invest in new
banking halls and install sophisticated security equipment, including armed
security personnel from the Administration Police and private security guards.
In ensuring security of members
contribution, SACCOs are required to be cover up to Sh100,000 net of any liabilities
every member. This new development is similar to that of deposit protection
fund for banks and trusts for life insurance policies and serves to promote
investment and maintain confidence to members.
[i]Fredrick Wanyama –Impact Of
Liberalization Of Cooperative Societies In Kenya
http://socialeconomyhub.ca/sites/socialeconomyhub.ca/files/CIREIC/Papers/G3%20-%20Wanyama.pdf
[vi] Products offered include SACCO Compliance Advance and Savings,The Instant Premium Loan,KUSCCO Jungu Kuu Loan,KUSCCO Education
Loan,KUSCCO Express Loan,SACCO Special Deposit, Vijanaa Sasa,Vijanaa Loan
[x] Sect 91
[xviii]foreign trade operations;trust
operations, transacting Sacco Society business with non-members; Such other
activity as the Authority may prescribe.
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