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Kenyan Savings and Credit Co-operative Societies (SACCOs) are pushing to bypass employers in collecting member deductions, a move aimed at curbing a growing crisis of unremitted funds that has now reached KSh 3.49 billion. This shift seeks to safeguard SACCO liquidity and protect members from loan defaults.
Kenya's SACCO sector is grappling with a significant challenge as employers continue to withhold KSh 3.49 billion in member deductions, leading to calls for direct remittance mechanisms. The Sacco Societies Regulatory Authority (SASRA), in its 2024 Supervision Annual Report, highlighted that this non-remittance crisis threatens the financial stability of regulated SACCOs and adversely affects over 55,000 members.
The unremitted funds, which increased from KSh 2.59 billion in 2023, comprise deductions for both loan repayments and savings contributions. The bulk of this debt, approximately KSh 1.69 billion, is owed by county governments, public universities, and state corporations. This failure to remit funds cripples SACCOs' ability to issue loans, their core business, and falsely portrays members as defaulters, straining their relationship with their SACCOs.
In response, SACCOs are exploring strategies to acquire Front Office Service Activity (FOSA) licenses, which would enable them to directly deduct contributions and loan repayments from members. SASRA is actively advocating for legal and policy reforms that would empower the National Treasury to directly deduct owed amounts from exchequer allocations to defaulting government institutions. This proposed measure aims to circumvent lengthy legal proceedings and ensure timely recovery of funds.
The Federation of Kenya Employers (FKE), while not directly commenting on the proposed bypass, has previously urged the government to reconsider policies that increase the cost of doing business for employers, which could indirectly impact remittance capabilities. The Cooperative Bill 2023, approved by the Cabinet in November 2023, proposes penalties for employers who delay or fail to remit employee deductions to SACCOs within seven days, including compound interest of not less than 5% per month.
The continued non-remittance poses significant risks, including reduced liquidity for SACCOs, hindering their ability to offer new loans and meet financial obligations. Members face the risk of being listed with Credit Reference Bureaus (CRBs) for defaults they are not responsible for, affecting their creditworthiness and ability to access future credit.
The implementation of the Cooperative Bill 2023 and the SACCO Societies (Amendment) Bill, 2023, will be crucial in determining the future of employer-SACCO remittances. The effectiveness of SASRA's proposed direct deduction mechanism from exchequer grants will also be a key area to monitor. The uptake of FOSA licenses by SACCOs and their capacity to manage direct deductions will be important indicators of the sector's adaptation to these challenges.
The non-remittance issue is part of broader discussions on financial inclusion and the stability of Kenya's cooperative sector, which contributes significantly to the national GDP. The World Council of Credit Unions (WOCCU) ranks Kenya 14th worldwide in total SACCO assets and as Africa's leader in cooperative finance.
