Government unveils radical reforms including a safety net for deposits and strict vetting for directors to restore faith in the cooperative sector.

The days of losing life savings to collapsing cooperatives may finally be numbered. In a sweeping regulatory overhaul, the government has announced a raft of new rules designed to sanitize the Savings and Credit Cooperative Organization (SACCO) sector, a critical pillar of Kenya's economy that controls over Ksh 1 trillion in assets. The headline reform is the establishment of a Deposit Guarantee Fund, a long-awaited safety net that promises to shield members from the financial ruin that has followed recent high-profile SACCO failures.

Principal Secretary for Cooperatives Patrick Kilemi, speaking during the Police SACCO annual delegates meeting, outlined the government's vision. The new fund will mirror the Kenya Deposit Insurance Corporation (KDIC) in the banking sector, guaranteeing a refund of up to Ksh 500,000 for every member in the event of an institutional collapse. This move is a direct response to the crisis of confidence triggered by scandals at Metropolitan and KUSCCO, where members watched helplessly as their hard-earned billions evaporated.

The Safety Net Mechanism

For decades, SACCO members have operated without the safety ropes provided to bank customers. When a SACCO went under, the money was simply gone. The new Deposit Guarantee Fund changes this equation fundamentally. By mandating SACCOs to contribute to this insurance pool, the regulator ensures that the risks are spread and that the most vulnerable members—often retirees and low-income earners—are protected from total loss.

"This is about restoring trust," PS Kilemi asserted. "We want a SACCO member to sleep as soundly as a bank customer, knowing that the government has backstopped their savings." The operationalization of this fund is expected within the next six months, a timeline that signals the government's urgency in stabilizing the sector.

Purging the Boardrooms

Beyond the insurance scheme, the reforms take aim at the root cause of most SACCO failures: poor governance. The Sacco Societies Regulatory Authority (SASRA) is being granted expanded powers to vet the leadership of these organizations. A new "fit and proper" test will be mandatory for all directors and top managers. The era of the "forever board," where entrenched officials treat cooperatives as personal fiefdoms, is ending.

• Vetting Process: SASRA and the Commissioner of Co-operatives will now scrutinize the character and financial history of potential leaders before they can be elected.
• Term Limits: Strict term limits are being introduced to ensure fresh blood and prevent the calcification of corruption networks.
• Oversight: The regulator will have the power to step in and remove errant directors before a collapse occurs, moving from reactive liquidations to proactive supervision.

The 12-Month Ultimatum

The crackdown has already begun. SASRA has suspended the licenses of five SACCOs found to be non-compliant, restricting them to credit-only operations and barring them from taking new deposits. This "clean up" phase is a warning shot to the entire industry. Unregulated SACCOs, often the wildest frontiers of financial mismanagement, are being brought under the formal supervisory umbrella.

For the millions of Kenyans who rely on SACCOs for affordable credit and savings, these reforms are a overdue dawn. The government has drawn a line in the sand: the cooperative movement is too big to fail, and importantly, too important to be left in the hands of the incompetent and the corrupt.