Calls to transform credit and savings cooperatives

Will Government-backed Bill change how savings and credit cooperatives operate?

By Victor Adar

The government has republished a Bill that will make it difficult for defaulters to access loans from cooperatives. It is likely that the proposed Sacco Societies (Amendment) Bill, which sailed through the second reading in Parliament in February this year and was among 23 Bills that the High Court in 2020 declared unconstitutional after the National Assembly passed them without the input of the Senate, will see the light of the day this time around.

If the Bill, republished on November 25, 2021, and tabled in Parliament on November 29, is assented into law by President Uhuru Kenyatta, deposit-taking (DT) Saccos will be required to follow standard banking rules and regulations.

To a large extent, once you sign as a guarantor, your hands are tied, and you will be liable in case of default. So, what happens if you later discover that you acted as a guarantor to a serial defaulter or a member who is out to borrow and not repay?

It can be frustrating to be in such a scenario. In short, the Bill will be a relief to members as it aims at ending the shaky lending decisions that most Saccos make. To begin with, savings and credit societies will be required to issue pre-listing and post-listing notices to their customers as required by law.

This also means that Saccos will start sharing information with credit reference bureaus (CRBs) to bring to book defaulters. At the moment, they are obligated to share positive credit information among themselves but only share data with CRBs under the third parties’ category. Such gaps make it possible for defaulters to continue accessing loans.

“It has gone through all processes, and we should pass it before being forwarded to the Senate for input,” Amos Kimunya, Leader of Majority, told the National Assembly.

“This Bill has been republished following the Court of Appeal judgement in Civil Appeal No E084 of 2021, which nullified the Sacco Societies (Amendment) Bill 2021 for lack of participation by the Senate.”

The Bill has been republished to comply with the court order and comes after a three-judge bench in October 2020 ruled that the Senate’s role in legislation is mandatory and that it was illegal for the National Assembly to bypass the Senate.

Since the new CRB regulations, 2020 mandates all Saccos to share both positive and negative information about their customers with licensed credit bureaus, it will be the beginning of the end of dishonest members. The solution is within sight thanks to the Bill.

“A Sacco society shall, in the ordinary course of business, exchange information on performing and non-performing loans as may be specified by the authority and to such extent as may be prescribed through regulations made under the Act,” says the proposed Bill.

These gaps open up the chances for rogue members to apply for loans and default intentionally.

Saccos, as subscribers and as Credit Information Providers to the CRBs, must now take note of the new regulations, which provides, among other things, that “a credit information provider who furnishes negative information to a bureau concerning a customer shall, in writing or through electronic means, notify the customer of the intention to submit the negative information at least thirty days before submitting the negative information to the bureau or within such shorter period as the contract between the credit information
provider and the customer may provide”

Fraud investigation

In July 2019, President Kenyatta issued a directive that led to the formation of the Sacco Societies Fraud Investigation Unit (FIU). The unit’s main aim is to detect, prevent, and apprehend offenders perpetrating fraud within the Sacco subsector and the cooperative sector. It also pushes for collection and analysis, investigation, and recommendation for prosecution of detected and reported cases relating to fraud and disseminating relevant criminal intelligence.

• Parliament debates Bill to regulate Saccos

“It is expected that the establishment and full operationalization of the SSFIU shall significantly reduce the sporadic instances of fraud and corrupt practices within the SACCO subsector and improve consumer confidence in SACCOs as trustworthy investment destinations for members’ savings,” said Sacco Societies Regulatory Authority (SASRA) in its recently released
supervision annual report.

Data from SASRA shows that 175 registered deposits taking Saccos had 5.47mn members in 2020 compared to 4.5mn in 2019. The rise in membership resulted from the increase in licensed deposit-taking Saccos by three in 2020.

The regulator said a significant percentage of the total membership within the deposit-taking Sacco system accounting for 25.09%, were reportedly inactive in 2020, indicating that the portion of members had not made any transaction for six or more months. These numbers tell a lot. And, believe it or not, the said inactive members might not be ordinary (and honest) members. They became inactive after securing loans they had no intention of paying.

“Members should not append signatures on a blank loan application form. Before signing, they should always ensure that all details are filled in the loan application form. The loan amount is indicated in words and figures,” says Stima Sacco DT in its Facebook member group.

On the back of this, credit and savings cooperatives should invest in constructive education forums. The Stima DT Sacco Facebook is doing well on the member education front. The deposit-taking Sacco, established in 1974, conducts members’ education and sensitization seminars both physically and online in a bid to tackle the age-old issue of dodgy borrowers, which stems from a lack of knowledge. The training, among other things, allows members to guarantee wisely.