The cooperative sector in Kenya has little to celebrate with many missed opportunities in 2023.
- As 2024 begins, the SACCO industry is yet to have a Central Finance Facility-a platform that will enable inter-Sacco lending.
- Although the industry has had a central finance facility run by the Kenya Union of Savings and Credit Co-operatives(KUSCCO) Limited, for the past 30 years, the lobby group is embroiled in a tussle for control of the facility with the Co-op Ministry.
- On the sidelines are commercial banks, who view the inter-Sacco lending facility as a rival to their dominance of the credit market.
A fully operational inter-lending facility for Sacco means that these financial societies will be able to meet their liquidity shortfalls, do electronic fund transfers. It’ll also allow those with excess cash to lend it out and earn interest through the platform, wiping out the competitive edge that banks currently enjoy.
Among other issues that are yet to be resolved is a review of the Co-operatives Act- so that it aligns with the new constitution. This has created new complications for cooperatives. For example, since the co-operatives sector now a devolved function, it is still unclear where the commissioner for co-operatives and SASRA supervision and mandate begins and ends. There is also duplication of roles between county governments and the National Government in the supervision of Societies that have a presence in more than one County.
Due to a lack of clarity within Co-op Act Cap 490, deposit-taking Saccos have been paying levies to both county governments and SASRA.
- Cap 490 and the Sacco Act clauses require a financial cooperative society to have 9 members on its board of directors.
- This, according to experts, is a static and obsolete situation that does not reflect what is happening on the ground, especially with multi-sector DT Saccos societies that draw membership from all Counties and economic sectors.
- Industry insiders insist that clauses dealing with the common bond as well as definitions such as Management Committee Members should not feature in the co-operatives law and statutes.
The Liquidation Death Trap
According to the Kenya Society of Professional Co-operators (KSPC), there are no policy guidelines and safeguards to protect the frozen assets of co-operative societies under the liquidator’s hammer.
Analysts attribute the collapse of Kenya’s once vibrant cotton, cashew nuts, sisal, and pyrethrum farming as well as the sharp decline in the fortunes of the coffee industry, to a shutdown of many cooperative societies that once supported farmers in these agricultural sub-sectors.
There are numerous cases of cooperative societies that went into liquidation due to squabbles within either the board or between it and the management. In these instances, the co-operative remained solvent at the time of liquidation-some in possession of vast tracks of farmland, plant and machinery, vehicles, buildings, and office blocks as well as share certificates, unpaid dividends or rebates as well as cash in the bank, etc.
- Many co-operatives that face liquidation risk having the assets end up in private hands after being sold off without the knowledge of members.
- There are many moribund Co-operatives that shut down operations years ago but are yet to be sold off and proceeds from the sales redistributed to members.
- Co-op sector experts maintain that the liquidation process takes too long with many members waiting for decades before their claims are settled by the liquidator, an officer that is usually appointed by the Commissioner for Co-operatives.
There has been a push to have a time limit upon which the Commissioner must conclude the process, such as a 4 year window, and an annual report to an appointed caretaker management committee. Industry players have also suggested independent valuations that precede any asset sales.
At present, there are concerns that the liquidator enjoys too much power and is not answerable to members of the affected societies.
As 2024 begins, all eyes will be on Parliament as it seeks to pass a policy paper that will trigger a review of Co-op Act Cap 490, and eventually set up an inter-Sacco lending facility in addition to updating the law.
Also under close watch will be The Law of Contract (Amendment) Bill 2023 which seeks to shield guarantors from the auctioneer’s hammer, when those they have guaranteed fail to meet their debt obligations.
This Bill intends to protect the assets of guarantors, requiring that all lending institutions, including Banks and Saccos, first liquidate a defaulter’s properties-including shares or unpaid dividends/rebates, before targeting those held by a guarantor(s).