Economy
Sasra kicks off with Sacco Deposit Insurance Plan
Saturday 17 June 2023
Delegates follow the work of the Sixth Conference of the Kenya Confederation of Savings and Loan Cooperatives (KUSCCO) in Mombasa on February 24, 2021. Photo | Kevin Odette | NMG
The Saccos regulator is seeking changes to the existing law to provide a framework for appointing trustees to oversee the Deposit Guarantee Fund (DGF) to protect savers from losses on their deposits of more than NIS 600 billion.
Treasurer Nguguna Ndongo said Thursday that the SACO Societies Regulatory Authority (SASARA) is proposing to amend the 2008 SACO Societies Act, which for the first time will help protect depositors from losses.
The law provides for the creation of a deposit insurance fund for credit unions, but the scheme has not yet been established. SASARA commenced operations in June 2010.
“There was a lack of a resolution mechanism for the financially troubled SACOs. Sasra proposed an amendment to the SACO Societies Act 2008 to provide a framework for the appointment of DGF trustees for SACOs in Kenya,” said Professor Ndongo.
Twelve years ago, the sector issued precautionary guidelines to help Saccos’ financial stability, which boosted savings. However, SACO members were left exposed, unlike the banking and insurance sectors.
Saccos on deposits alone accounted for Sh616.98 billion at the end of last year compared to Sh341.91 billion five years earlier, indicating the continued growth of the sacco movement, one of the most vibrant sacco movements in Africa.
Also read: SACO’s assets defy Covid to rise 14%
Section 55 of the Sacco Associations Act sets out a precursor to the creation of a DGF to provide protection for members’ deposits of up to Sh100,000, excluding shares, in the event of a Sacco collapse due to liquidity or governance challenges.
Sasra sees DGF, a form of deposit insurance scheme, as an essential infrastructural pillar to foster a culture of saving by promoting trust and confidence among savers.
Underwriting SACO deposits would see credit unions join a consortium of banks and insurance companies, which have plans to compensate depositors and policyholders in the event of a collapse of financial institutions.
The Kenya Deposit Insurance Corporation compensates bank savers and small financiers who take deposits of up to Ksh500,000 immediately after a bank collapse, with the remainder dependent on what is recovered later.
The Policyholders Compensation Fund will pay NIS 250,000 to each policyholder in the event that the insurance company is declared insolvent.
The Deposit Protection Scheme is expected to revolutionize the profitable Sacco sector by insulating members’ deposits from unexpected risks.
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