Savings and Credit Cooperative Societies (SACCOs) have become a vital financial backbone for many Kenyans, particularly those in the low and middle-income brackets.
Unlike commercial banks, SACCOs offer members affordable loans, attractive dividends, and a sense of community-driven financial empowerment.
Many Kenyans turn to SACCOs as an alternative to traditional banking, benefiting from flexible loan terms and higher returns on savings.
However, the recent revelations of financial mismanagement at the Kenya Union of Savings and Credit Co-operatives (KUSCCO) have sent shockwaves across the sector, putting members' hard-earned savings at risk.
Unpacking the KUSCCO scandal
The Ministry of Cooperatives and Micro, Small, and Medium Enterprises (MSMEs) recently handed over a forensic audit report on KUSCCO to national security agencies.
The report, compiled by PricewaterhouseCoopers (PwC), exposed gross financial irregularities, including non-performing loans worth Sh3.7 billion, overstated profits of nearly Sh798 million, and irregular commissions amounting to Sh2.7 billion.
This has left multiple SACCOs facing massive losses, with institutions such as Mhasibu SACCO, Kimisitu SACCO, and the Law Society of Kenya SACCO seeing hundreds of millions wiped out.
How members of impacted SACCOs will be affected
1. Loss of deposits
The biggest impact of the KUSCCO scandal is the potential loss of savings for SACCO members.
With SACCOs set to lose billions of shillings, members who had invested in these institutions may face difficulties in accessing their funds, particularly if their SACCO had a high level of exposure to KUSCCO’s financial mismanagement.
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2. Reduced dividends
To cushion against losses, the government has directed 247 SACCOs to reduce dividend payouts.
This means members who depend on these annual payments as a source of income or reinvestment will see significantly lower returns, affecting their financial stability.
3. Difficulty accessing loans
SACCOs rely on their financial reserves to issue loans to members at favourable interest rates. With the massive losses incurred due to KUSCCO’s scandal, many SACCOs will be forced to tighten lending policies.
This will make it harder for members to secure loans for personal or business use, leading to financial strain.
4. Increased loan interest rates
As SACCOs attempt to recover from their financial losses, they may increase loan interest rates to maintain stability.
This will make borrowing more expensive, particularly for members who depend on SACCO loans for investments, education, or emergencies.
READ ALSO: 6 downsides of SACCOs in Kenya you should know about before joining one
5. Panic withdrawals and SACCO instability
Following the exposure of the KUSCCO scandal, many SACCO members may panic and withdraw their funds or transfer their shares fearing further financial mismanagement.
This could destabilise SACCOs, leading to liquidity problems and further financial strain on members still relying on these institutions.
6. Longer processing times for loans and withdrawals
With SACCOs restructuring their financial operations, members may experience delays in loan approvals and withdrawal processing.
This could be particularly problematic for those in urgent need of financial support.
Photo: CS Oparanya when he handed the forensic report on KUSCCO to IG Douglas Kanja
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7. Stronger government regulations and SACCO restructuring
While tighter government oversight is necessary to prevent similar scandals in the future, it may also lead to stricter regulations that could limit SACCOs' operational flexibility.
This might affect how SACCOs provide services to members, potentially making them less attractive than before.
The government has pledged to restructure KUSCCO and strengthen SACCO regulations through amendments to the SASRA Act of 2008.
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