Nairobi and Kampala are moving to tighten oversight of savings and credit cooperatives (Saccos) after a string of collapses and fraud cases exposed risks in institutions long celebrated as engines of financial inclusion.

Both governments are reviewing rules governing membership, share capital, deposit-taking and consumer protection in a bid to restore confidence and curb recurring Sacco failures.

In Kenya, Saccos control assets running into trillions of Kenya shillings and serve millions of members, but the sector has grappled with governance disputes and liquidity pressures in recent years. Uganda has also reported cases of loan defaults, mismanagement and member losses that have raised concerns over oversight.

Experts contend that the review of rules is both necessary and overdue to protect a sector that has become a crucial driver of economic growth in both countries.“Recently, we’ve seen many losses in terms of Saccos going under, and as well as mismanagement of funds, which calls for a tighter regulation,” said Amos Ngahu, a financial coach and founder of Money Clinic Limited, a financial literacy firm.

Kenya’s current review was triggered by the loss of funds at the Kenya Union of Savings and Credit Cooperatives (Kuscco), an umbrella body for Saccos, where more than $103 million (Ksh13.3 billion) in member funds was misappropriated and lost under unclear circumstances.

Kelvin Kariuki, a Kuscco member, told The EastAfrican that the loss left him in financial turmoil and that he has yet to recover his savings after trying for more than four years.“All I want is my money and I have tried to follow it up for a while now and left frustrated,” he said in an email. “I have worked hard for the little I’ve saved and to be taken for a ride is not something I’ll take lightly for what I’ve rightly owned.”His frustrations mirror those of several other Kenyans who have lost money in collapsed Saccos in recent years, as existing regulations failed to cushion them from failures.

Besides Kuscco, Metropolitan Sacco and Afya Sacco have also suffered misappropriations that triggered liquidity challenges, leaving members without access to their savings and investments.

A host of smaller Saccos, including Mhasibu, Kenpipe, Balozi, Qona and Kimisitu, have also reported losses linked to sector turmoil, prompting calls for tighter oversight.

Uganda has experienced Sacco failures in recent years as well. The latest is the Uganda Liberal Teachers Union (Ulitu) Sacco, where leaders were found to have misappropriated member funds, with an estimated $1 million lost.

Other Saccos such as Masaka Elders Sacco and Exodus Sacco face uncertainty after recent cases of mismanagement pushed them to the brink.

To tame recurring problems in the cooperative sector, regulators in both countries are tightening oversight through stricter rules.

In Kenya, a committee of experts tasked with reviewing the Sacco system after the recent wave of losses recommended several changes to the regulatory framework, including raising the minimum Sacco membership to 100 from 10.

It also proposed a tiered licensing and oversight system based on asset size. Under the proposal, Saccos with assets above Ksh50 million ($387,867) would fall into the first four tiers and be regulated by the national Sacco Societies Regulatory Authority (Sasra).

Smaller Saccos would be regulated by cooperative offices in devolved governments, with ultra-small ones required to merge in order to meet regulatory thresholds.“The minimum requirements for registering new Saccos must be increased. There are significant risks to the Sector, and to members funds, if this does not happen, and a pathway developed to enable all Saccos to be regulated in the future,” said the experts’ committee in its report.

Currently, Saccos are allowed to operate with a minimum of Ksh10 million in assets, but only about 350 of an estimated 30,000 are regulated by the national authority. The proposed changes are expected to bring more Saccos under formal oversight.

Uganda is also pushing to bring Saccos under the regulatory purview of the watchdog, currently the Bank of Uganda. The deadline for licensing has been extended from March to September to allow more time for compliance.

After the September deadline, regulated financial service providers, including banks, insurers and payment gateway providers, will be barred from doing business with unlicensed Saccos.

Both Kenya and Uganda are significant Sacco markets on the continent. Kenya’s 355 regulated Saccos have the highest asset base in Africa at $8.3 billion, while Uganda has one of the largest numbers of Saccos at 1,368.

In Kenya, Saccos hold $5.8 billion in savings for more than 7.3 million members. In Uganda, about one million people have entrusted credit unions with $83 million in savings, underscoring their importance to the two economies.

For many Kenyans and Ugandans, Mr Ngahu argues, Saccos are the only source of credit and savings they have known and play a crucial role in personal financial development.“Saccos have actually been one of the best foundations that most average Kenyans have benefitted from, from building the saving discipline to accessing credit at low interests. That’s why the sector must be protected,” he said.

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