Billions of shillings are at stake after five saccos were blacklisted for taking deposits from the public without licences. There are fears that more saccos could suffer the same fate when investigations into their business are completed.
The affected saccos, however, deny that they were carrying out any front office business. However, they admitted collecting money from members either to loan to them at lower interest rates or to buy assets.
Last week, the Sacco Societies Regulatory Authority (Sasra) blacklisted Good Life Sacco Society and related Fedha Micro-Finance Investment Limited, Prevailing Sacco Society Limited, New Milimani Sacco Society Limited, Millionaire Sacco Kenya and Urithi Premier and its affiliate Urithi Housing Co-operative Society Limited.
Acting Sasra CEO John Mwaka warned the public that they risked losing money by transacting with these entities.
“We have a trail of letters showing the correspondence between us (Sasra) and them. They have failed to comply with the requirements of deposit-taking saccos,” said Sasra.
Sasra’s drastic action has exposed a vacuum in the regulation of deposit-taking saccos that operate front office services (Fosa) and those that run back office services. The non-deposit taking saccos are regulated by the ministry of Industrialisation where the co-operatives docket falls.
A rule opening the membership of saccos to savers, who are not united by profession or business, has opened a chance for entities such as New Milimani Sacco that now has 60,000 members mostly small traders to expand.
Currently, New Milimani has outlets in Thika, Embu, Githunguri, Eastleigh, Githurai, Nyeri, Ongata Rongai, Nakuru and Kitengela.
“We deal with members, who save as low as Sh200 a day and they borrow three times their savings at 10 per cent compared to the over 18 per cent charged by the banks,” said the CEO, Mr George Docker.
Mr Docker said they applied for Fosa licence in 2014 but Sasra turned down their application.
For saccos to get a Fosa permit, they must have a minimum capital of Sh10 million, an ICT outlay and security features similar to the ones used by banks.
Urithi Sacco, which has been involved in buying land for members denied operating front office services. Urithi Housing Co-operative Society Limited has 12,000 members, who have paid Sh1,000 membership fee while about 3,000 savers have each parted with Sh14,000 for shares.
Urithi marketing manager, Mr Wallace Mwaura, said they were regulated by the ministry of Industrialisation. He said Urithi Premier, which is a different entity, was only three months old and was yet to start business.
Urithi Sacco manager, Mr Isaac Gathara, said the company has been wooing members to buy land and houses. It was established two years ago and has presence in Thika, Nairobi, Nakuru, Mombasa and Gilgil.
“We do not collect money for lending but members pay for their plots in instalments,” Mr Gathara said.
The sector watchdog, however, said these entities were collecting money “from the public with false promises of favourable returns on savings and or deposit accounts.” Sasra said that saccos are legally restricted and limited to only carry out non-withdrawable deposits to lend to the members.
“Such societies are prohibited from providing Fosa services such as deposit accounts of any description, ATM services and mobile money business.”
Good Life Sacco boss Peter Wanjohi said the company has been in business for the last three years and that it had communicated with Sasra, explaining that itself and Fedha only shared the chairman, who has since resigned.
“We’ve had challenges after some members went to court demanding Fedha to give them interest for assets we bought that include land and a guest house in Eldoret,” Mr Wanjohi said.