Seek nod from watchdog, Saccos seeking to convert into banks told

Savings and Credit Societies that want to convert into banks have been cautioned to follow the required approval process to avert possible loss of members’ funds.

Sacco Societies Regulatory Authority managing director, Mr Carilus Ademba, said the rush to engage lawyers and transaction advisors without seeking approval from the authority could end up costing the sacco, especially if approvals are declined.

“The trend that is emerging is that of saccos converting into banks or buying banks. When you go to the banks, you enter new regulatory regime that is more stringent and requires certain ratios to be maintained throughout. We have seen these moves and are doing an analysis on them,” Mr Ademba said.

Mr Ademba told the leaders that they could still grow saccos to be bigger financial institutions commanding huge market without converting into banks, citing the credit unions in the US as an example.

The warning comes days after Mwalimu Sacco announced that it would convert into a commercial bank.

“These saccos should seek approval of Sasra before taking such move. Some are engaging lawyers and auditors and transaction advisors before this. If you incur expenses before approval is provided and its declined what happens to the members funds already committed?”

He said in the process of upgrading into banks, some might erode their capital base, which would prompt the regulator to withdraw their licences.

Mr Ademba said most of the assets are tied in the members loans-constituting 80 per cent, which amounted to Sh251 billion advanced as loans to members in 2013 against Sh324 billion in assets.

He said the saccos should have an overnight lending platform like the banks to ensure they do not run out of money at any time.

This, he said required them to embrace credit reference bureau that will enhance sharing of information with other financial institutions to reduce the risk of default.