Metropolitan sacco probed over cash woes

Investigators from the Sacco Societies Regulatory Authority (Sasra) have raided Metropolitan National Sacco in a bid to establish its stability following its ambitious expansion that has left it without enough money to meet the needs of more than 100,000 members.

The investigation comes after complaints by members that they could not access their salaries or loans when they are channelled through the sacco’s banking wing. When they did, it was restricted to an amount determined by the management.

“They are serving us on a first-come first-served basis. When I went there on Monday, I was told I can only withdraw Sh20,000 if I’m among the first 20 customers at the branch,” said a primary school teacher in Dagoretti. The teacher had applied for a loan of Sh300,000, which was approved. He was told the money could not be transferred by cheque, dispensed at ATMs or paid in full. The sacco mostly serves teachers who are paid by the Teachers Service Commission.

LOANS

At a meeting between the management and teachers’ representatives on April 3, it was agreed that access to salaries and loans should not be limited and that the sacco would go round the country explaining the circumstances surrounding the financial distress.

“We want regulators to investigate what is going on in order to safeguard members’ savings. If it is mismanagement and misappropriation, those responsible should be suspended and taken to court. If need be, the sacco should be placed under statutory management,” said Mr Macharia Mugwe, the Nairobi Kenya National Union of Teachers (Knut) executive secretary, who represented members at the meeting.

On Monday, a team from Sasra led by the chief manager sacco supervision Peter Njuguna took control at the Metropolitan’s Koinange Street head office to assess its operations. “We have a team of five at the Metropolitan offices to establish what the situation is. A preliminary report is expected on Wednesday and a final decision will be made by Friday,” said Sasra communications manager Ann Kago.

NORMAL SERVICES

On Friday, Sasra CEO John Mwaka told the Nation the authority, which polices deposit-taking saccos, was working with Metropolitan’s management to normalise operations. “The foundations are good and we are working with them so that normal services can resume. What is left is monitoring of the operations,” said Mr Mwaka.

That investigators have been sent to the sacco, however, points to the authority establishing the facts with a view to taking administrative action to stem the liquidity crisis.

The actions allowed under the law include stopping further lending and expulsion of staff and board members who might be found culpable of flouting regulations governing saccos.

The management traces its precarious financial position to December when high demand for deposit refunds could not be matched by the sacco’s finances. It blames this on delayed remittances by some companies and counties. The sacco is also struggling to service liabilities of Sh5 billion owed to two commercial banks.

CHALLENGES

“We have a few challenges which we are trying to sort out. Some members were unable to access money, attracting social media debates and causing panic withdrawals,” Metropolitan CEO Francis Ng’ang’a said in a telephone interview on Thursday. He said the sacco had suffered a run on deposits of about Sh1.2 billion over the past two months. The sacco had deposits of Sh7 billion as of December last year.

However, its books of accounts raise some questions on the society’s prudence.

Among the sticking points is lack of full disclosure in the society’s reports to members, the sacco guaranteeing members to take loans totalling Sh2 billion from a commercial bank, an innovation that saw members get loans as soon as they joined the society, rapid expansion and decentralisation of lending to the branches.

Also contentious is how the sacco declared and disbursed interest on member deposits (rebates) at the rate of 11.7 per cent totalling Sh583 million, and Sh3.8 per share as dividend, totalling Sh135 million, for 2017 in February while the run was already evident.

REBATES

Sasra approved the accounts that allowed the payment of rebates while it is empowered under the law to block distribution of money to members where a society is financially unstable.

The management says disclosures such as the bank guarantee scheme and risk classification are captured in accounts presented to Sasra, but which were not shared with members. It also says Sasra was aware of the lending to new members who had not saved with the organisation for at least six months as is required under the law. Sasra denies this.

To allow members get loans on joining the sacco, Metropolitan would give the amount applied for and retain a third of the proceeds as deposits to comply with its bylaws that say a member gets a loan equivalent to three times the savings and after saving for at least six months. Under this scheme, deposits by members in the sacco grew by more than Sh2 billion in one year. “It was an innovation that helped members access loans earlier than they ordinarily would,” said Mr Ng’ang’a.

DEFAULTS

However, because the sacco did not fully know the new members and their ability to pay (some were drafted from security companies), this led to loan defaults now in excess of Sh600 million. It had liabilities of Sh11 billion including Sh7 billion in member deposits.

The loans to deposits ratio was 1.7 more than double the 0.9 recommended by the World Council of Credit Unions. The average for saccos in Kenya was 1.1.

The higher the ratio, the more a lender is dependent on borrowing for lending.

Mr Ng’ang’a said before the Sasra’s intervention the actions agreed on in the meeting with member’s representatives would be implemented by mid next month.

“We expect the pressure to ease as we gradually retire debts and reduce servicing needs,” said Mr Ng’ang’a. The sacco paid Sh246 million as interest on loans last year, up from Sh220 million in 2016.