WOODLAND: Saccos urgently need deposit insurance fund for saccos

Saccos in Kenya have over the last few years become frontiers for exponential growth when it comes to investment. Most Kenyans prefer saving and accessing loans from the societies which are now increasingly welcoming the idea of private asset-financing, unequivocally promoting more growth in the sector.

Saccos come with the lower and more flexible interest rates as compared to other traditional financial institutions such as commercial banks.

As more keen interest is driven towards saccos, it goes without saying that it is also being used as an opportunistic savings and investment vehicle to rob unsuspecting Kenyans of their hard- earned money. Unlike bank depositors who are protected or insured under the Kenya Deposit Insurance Corporation, which guarantees a few coins in cases of insolvency, saccos are yet to adopt such insurance schemes.

Saccos need proper corporate regulation mechanisms, given how they frequently make key investment decisions on behalf of their members— decisions which need to be cautiously taken.

An exercise of caution akin to that of wearing a belt and a suspender at the same time needs to be exhibited while making these investment decisions because they not only hold but also invest money on behalf of millions of Kenyans.

The corporate governance structure of saccos has equally not been keenly dealt with or emphasised upon. Going by the recent numerous cases of corruption, malpractices and fraudulent transactions exhibited by those at the helm of a number of saccos, it is important to tighten the noose on regulation—being that many Kenyan and foreign investors remain vulnerable to such malpractices.

But sacco or corporate governance in general is more of a moral and ethical issue no matter how stringent or overly rigid we make our regulatory laws to be. This is because it is difficult to teach or regulate an individual’s honesty, accountability or transparency or how to avoid conflict of interest on the board, when they clearly know when and how such incidence arise. But this does not in any way suggest that we should not have a comprehensive governance structure or tight rules and regulations for saccos.

Conflict of interest, unreasonable compensations, limited director competence, board approvals of financial statements, poor board balance are some of the challenges. It is also true that each corporate vehicle has its own uniqueness and weaknesses (ethical problems). Some of these inherent ethical dilemmas motivate Sacco managers or board members to focus on their own interests, since their governance systems lack accountability.

The Sacco Societies Regulatory Authority (SASRA) should therefore speed up the setting up of a deposit insurance scheme to act as a safety net and insure the financial investments of all depositors or equally place such an insurance scheme under the Kenya Deposit Insurance Corporation (KDIC) for efficiency, since they are in direct competition with commercial banks.