How saccos are addressing non-remittance of funds

Sacco members during an annual general meeting in Kenya’s capital Nairobi. Failure by employers to remit deductions is increasingly becoming a big threat to the survival of many saccos. PHOTO | FILE | NATION MEDIA GROUP A majority of deposit-taking Saccos in Kenya are experiencing financial instability due to failure by state agencies and private companies to remit statutory deductions on time.

As the government streamlines savings and credit co-operative societies that are reeling under the weight of mismanagement, fraud and bad loans, failure by employers to remit deductions is increasingly becoming a big threat to the survival of many saccos.

To tackle this, the Sacco Society Regulatory Authority (Sasra) is developing legal and institutional proposals to protect saccos from such employers.

Unremitted deductions

Sasra statistics show that by end of last year, employers in the public and private sector owed deposit taking saccos $26.7 million in unremitted deductions.

The deductions were in the form of either loan recovery or non-withdrawable deposit accounts, popularly known as back office service activities.

Of the unremitted deduction, 79 per cent were meant for loan repayment and 21 per cent for non-withdrawable deposits contributions.

“The perennial failure by various employer-institutions to remit deductions made from employees’ emoluments has had serious adverse effects on the financial soundness of various saccos,” said John Mwaka, Sasra chief executive through a circular seen by The EastAfrican .

Among the challenges saccos are facing include failure to meet and maintain prudential standards especially the liquidity ratio and capital adequacy ratio, liquidity constraints making it impossible to issue new loans and plunging them deeper into loss making.

The problem is compounded by the new stringent IFRS9 financial reporting standards that have hit all deposit-taking saccos further squeezing earnings.

Under IFRS9, capital adequacy, asset quality, earnings and liquidity remains key criteria for monitoring, evaluating and measuring the financial soundness and stability saccos. Impact The challenge is not limited to Saccos but failure by employers to remit deductions is also having a negative impact on Sacco members who are unable to get loans, while some get listed with credit reference bureaus and others are denied credit for lack of collateral.Worse still, the trend is threatening the stability of Kenya’s financial services sector and the economy owing to the fact that the sector is worth about $10 billion in assets.Sasra data indicate that Saccos employ more than 500,000 Kenyans directly and another 1.5 million indirectly.Sacco savings and deposits are estimated […]

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