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Kenya: How Sasra is keeping saccos fit to serve the credit market

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Kenya’s famed co-operatives sector appears to be growing in the middle of turbulence arising from failure to comply with some regulatory requirements.

For instance, a recent report by sector regulator said more than 100 deposit-taking savings and credit co-operative societies (saccos) did not meet the mandatory capital ratio requirement in 2016, raising questions over their fitness in the key credit market.

The Business Daily spoke to the Sacco Societies Regulatory Authority (Sasra) chief executive, John Mwaka, on the state of the industry and what the agency is doing to keep it in shape. Here are the excerpts:

The statement is not correct. The correct position is that there are four capital adequacy requirements to be met by Dt-saccos in accordance with the law. The emphasis is usually on core capital, capital to total assets ratio and capital to total deposits ratio.

The report showed that 168 Dt-saccos out of 175 were fully compliant with the core capital requirement of a minimum Sh10 million; 144 Dt-saccos out of 175 were fully compliant with the core capital to total assets requirement of 10 per cent and 169 Dt-saccos were fully compliant with core capital to total deposits requirement of eight per cent.

The conclusion in the report is that the Dt-saccos sector is financially stable and sound as required by law. The last ratio of institutional capital to total assets is the one that was not met by a majority of the Dt-saccos.

Regulatory definition of core capital includes institutional capital and as indicated above, less than 10 saccos were non-compliant with core capital to assets ratio. It is inaccurate to measure financial soundness of saccos based on institutional capital alone.

Technically, the only avenue available for saccos to build institutional capital is to retain surpluses. This explains the slow level of compliance with this ratio as loan assets are growing faster than the earnings.

The authority shall be engaging stakeholders on the continued relevance of this ratio. Dt-saccos remain stable and viable alternative source of credit financing to Kenyans; and their fitness cannot be questioned.

Credit: Business Daily

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