The government has approved critical reforms to safeguard SACCO members' deposits following the recent financial scandal involving the Kenya Union of Savings and Credit Cooperatives (KUSCCO).
The scandal exposed vulnerabilities in SACCO management, prompting swift action to enhance financial security and restore public confidence.
A forensic audit report, handed over to national security agencies, detailed fraudulent activities leading to the loss of over Sh13 billion in SACCO deposits.
Findings of the forensic audit report
A forensic audit conducted by PricewaterhouseCoopers (PwC) revealed glaring financial irregularities within KUSCCO. The report highlighted several key issues, including:
These fraudulent activities have severely impacted several SACCOs, with institutions such as Mhasibu SACCO, Kimisitu SACCO, and the Law Society of Kenya SACCO experiencing substantial financial losses.
In response, the government has moved swiftly to enact reforms aimed at restoring public confidence in SACCOs.
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Major reforms to SACCO management proposed by the cabinet
During a Cabinet meeting chaired by President William Ruto on Tuesday, March 11, 2025, the government approved amendments to the Sacco Societies Act, 2008, to enhance the stability, efficiency, and competitiveness of SACCOs in Kenya.
A Cabinet dispatch outlined the objectives of the reforms, stating:
In a bid to enhance the stability, efficiency, and competitiveness of Kenya’s Savings and Credit Cooperatives (SACCOs), the Cabinet has approved amendments to the Sacco Societies Act, 2008.
The proposed reforms, outlined in the Sacco Societies (Amendment) Bill, 2023—now before Parliament—aim to modernise financial and technological operations, particularly benefiting smaller SACCOs.
Key features of the new SACCO reforms
SACCO shared services framework – This allows SACCOs to pool resources, adopt financial technology solutions, and enhance collaboration while maintaining operational independence.
Central liquidity facility – This initiative will facilitate inter-SACCO transactions, short-term lending, and participation in the National Payment System, strengthening financial stability.
Centralised data repository – A new system to improve regulatory oversight, ensure transparency, and enhance efficiency in SACCO management.
Deposit guarantee fund – A scheme designed to protect SACCO members’ deposits, reducing the risk of losses and minimising the need for government bailouts.
According to the Cabinet, reforms to the Deposit Guarantee Fund will ensure better protection of SACCO deposits, reduce government bailout risks, and strengthen the cooperative financial sector.
How the SACCO Deposit Guarantee Fund compares to banks and insurance firms
A major highlight of the reforms is the establishment of a SACCO Deposit Guarantee Fund, which closely mirrors existing protection mechanisms in banks and insurance companies.
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The Kenya Deposit Insurance Corporation (KDIC) is responsible for protecting deposits in commercial banks and microfinance institutions. KDIC ensures that in the event of a bank collapse, depositors receive compensation up to a certain limit.
The newly proposed SACCO Deposit Guarantee Fund seeks to offer similar security, ensuring that SACCO members do not lose their savings in cases of financial mismanagement or fraud.
In the insurance sector, the Policyholders Compensation Fund (PCF) serves as a safety net for policyholders in cases where an insurance company becomes insolvent.
Similar to PCF, the SACCO Deposit Guarantee Fund will step in to protect members when a SACCO faces financial distress, ensuring that depositors are not left vulnerable.