The government is set to tighten regulations governing Savings and Credit Cooperative Societies (Saccos), including the establishment of a Deposit Guarantee Fund to safeguard members’ savings.
This decision follows a forensic audit by PricewaterhouseCoopers (PwC), as reported by The Star, which exposed widespread mismanagement and fraud at the Kenya Union of Savings and Credit Cooperatives (KUSCCO), the umbrella body overseeing Saccos in the country.
On Tuesday, the Cabinet, chaired by President William Ruto, approved the Sacco Societies (Amendment) Bill, 2023, aimed at modernizing financial and technological operations—especially benefiting smaller Saccos.
“Reforms to the Deposit Guarantee Fund will enhance protection for Sacco deposits, minimize government bailout risks, and strengthen the cooperative financial sector,” the Cabinet stated.
Saccos to Join Banks and Insurers in Protecting Depositors
The introduction of deposit insurance will align Saccos with banks and insurance firms, which already have compensation schemes for depositors and policyholders in the event of institutional collapse.
Despite discussions over the past two years on safeguarding Sacco deposits, little has been done to formalize the framework in law, leaving over Sh1 trillion in members’ deposits at risk.
Under Section 55 of the Sacco Societies Act, a Deposit Guarantee Fund (DGF) is meant to protect members’ deposits up to Sh100,000 (excluding shares) in case of a Sacco’s collapse due to liquidity or governance issues.
However, while the law provides for such a fund, it has never been implemented since the Sacco Societies Regulatory Authority (Sasra) was established in 2010.
In contrast, the Kenya Deposit Insurance Corporation (KDIC) compensates bank and deposit-taking microfinance customers up to Sh500,000 in case of a bank failure, with any additional refunds depending on asset recovery.
Similarly, the Policyholders Compensation Fund reimburses Sh250,000 per policyholder if an insurance company is declared insolvent.
The new Sacco regulations, once enacted, are expected to increase financial stability, enhance public trust, and protect members’ hard-earned savings from potential risks.
