Non-Deposit-Taking SACCOs, which run Back Office Service Activity(BOSA)and with more than KSh 100 Million, have the next three months to fulfil the new SACCO Societies Regulatory Authority(SASRA) rules.
The CS, Ministry of Agriculture, Livestock, Fisheries and Cooperatives Peter Munya said that all large non-deposit taking SACCOs have until June 2021 to comply with the new law.
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Deadline for SACCOs to comply
These new regulations require Non-Deposit Taking SACCOs to apply to the Authority within 182 days months of the Regulations 2020 having come into legal effect (June 30, 2021), for authorization to operate.
These SACCOs are required to file their detailed particulars with SASRA within 30 days of a notice published by SASRA on January 29th, 2021.
Also covered by the new rules are Non-DT SACCOs that recruit members and subscription to their share capital through digital or other electronic payment platforms.
This is especially so for those SACCOs that mobilize membership and subscription to their share capital from persons abroad.
Industry figures for 2020
Data from the Ministry shows that the balance sheet of the DT SACCO subsector, regulated by SASRA, hit KSh 622 Billion in Q4, 2020, compared to KSh556 Billion at the end of Q4 in 2019, a growth of 12% per annum.
The loan book size grew to KSh469 Billion at the close of 31st December 2020 against KSh420 Billion in 2019, a growth of 11.5%.
Members’ Deposits held by the DT SACCOs stood at KSh425 Billion in 2020 compared to KSh381 Billion by the end of 2019, respectively, a 12% growth.
The Non-Performing Loans Portfolio (NPLs) for DT SACCOs closed 2020 at KSh30.44 Billion, 6.49% of the industry’s total loan book.
This compares to NPLs worth KSh25.79 billion, out of gross loans of KSh419.55 billion as of December 2019 (6.15% of the loan book)
The new rules for Non-DT SACCOs come as the Ministry pushes through reforms in the Agricultural sector, which has some of Kenya’s largest co-operative societies.
“Many agro-based co-operatives have been plagued by malpractice in management and poor governance. Some large SACCOs in addition to agriculture co-operatives, especially those in the tea, dairy and coffee sector, have over the years benefitted from public investments and bailouts”, said Munya.
He said the new Non-DT SACCOs Regulations would complement the member accountability mechanisms of holding annual general meetings when the elected directors report to the members.
Reforms for SACCOs in the pipeline
He said the list of reforms in the pipeline includes:
- Setting up a Central Liquidity facility and Shared Technology platform.
- Operationalizing the deposit guarantee fund for SACCOs.
- Establishing the SACCO Fraud Investigation Unit and supervision of all Back Office Services Activity (BOSA) SACCOs.
The appropriate legal amendments have been drafted for the SACCO Deposit Guarantee Fund(DGF), which will be taken back to Treasury, to be included in the 2021/22 Finance Bill.
In the meantime, SASRA is asking SACCOs to nominate representative Trustees, who will be sent to the Cabinet Secretary for appointment to the DGF Board by June 2021.
The Board of Trustees shall serve as the governing organ for the DGF overseeing its operations.
At present, SASRA is the watchdog for 175 DT-SACCOs, some with balance sheets more enormous than those of banks and other lenders.
New Rules for Non-Deposit Taking SACCOs
The Core Capital for those in the non-deposit taking business must also not be less than 8% of the particular Society’s balance sheet size.
At least 50% of the KSh 5 Million must be composed of retained earnings and disclosed reserves and not less than 5% of the total non-withdrawable deposits held by the Sacco Society on behalf of its members.
Deposit-taking SACCOs requires one to open a savings account and deposit money that can quickly be withdrawn, similar to commercial banks.
But, non-deposit taking Saccos requires buying shares into the SACCO and becoming a member and saving. – but cannot withdraw it unless leaving the SACCO.
SASRA will also require a completed “fit and proper test” form, specifying members of the Society’s board of directors; supervisory committee; chief executive officer; senior management staff including heads of the information, communications and technology officer, the internal audit officer, the credit management function and the finance officer function.
Non-Deposit-Taking SACCOs also have until June 2021 to submit a three-year business plan and feasibility study of the Society, a certified extract of minutes of the general meeting resolution authorizing the Sacco Society to carry on specified non-deposit taking business and certified copies of the SACCO’s audited financial statements for the preceding three years.
Licensing requirements
The Regulatory will then do an independent onsite inspection to ascertain if the non-deposit-taking Sacco society has the appropriate institutional infrastructure, a Management Information System, proper risk management policies and internal control systems.
A non-deposit-taking Sacco society shall not later than the 30th November of every year submit to SASRA and an annual authorization renewal fee of KSh 30,000 for the Society’s head office and KSh 10,000 renewal fee for each of the Society’s authorized places of business.
Other submissions include the Society’s annual data and information specifying the operations and performance of the Society.
Previously, Back Office Service Activity (BOSA) SACCOs have been under the supervision of an overstretched and underfunded Office of Commissioner for Co-operative Development.
“The law is already there for those SACCOs that run Front Office operations. There are provisions under the SACCO Act, which gives the Cabinet Secretary the mandate to expand the regulatory framework of SASRA and this is what we have done,” said CS Peter Munya.
But even as the clock ticks on the six-month deadline for all the KSh 100 Million BOSAs to comply, there are concerns that many of these societies may not meet the timelines.
There are fears that many BOSAs could raise minimum share capital levels for their members to meet the new core capital threshold.
Analysts have raised concerns on whether these non-deposit taking SACCOs can attract qualified audit teams within their Supervisory Committees.
The rules on non-deposit taking Sacco business are also dead silent on assisting these BOSAs with money laundering and terrorism financing.
Non-deposit-taking SACCOs with capacity challenges could outsource audit services while using both the Society’s internal and external auditor to assist where necessary.
The rules governing qualifications for a CEO are missing from the new regulations. This is because of the feeling that this is a matter that the board can handle competently.
Non-Deposit-Taking Saccos seeking a license of SASRA will be required to pay an application fee of Sh3,000 and a one-off authorization fee of Sh 50,000. Those licensed will be required to pay an annual fee of Sh 30,000 and Sh 10,000 as new branch opening authorization fee.
A fine of KSh 500,000 is to be ped on anyone found operating a non-deposit- taking business without authorization.
Following the gazettement, it will take SASRA to approve a new application and six months after the law commences for specified Non-Deposit taking SACCOs to comply.
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