Kenya unveils new regulations to shore up SACCOs

Kenya's cabinet has recently given its stamp of approval to key amendments within the savings and credit cooperatives legislation. The move aims to enhance the regulatory framework governing SACCOs and ultimately strengthen the sector's stability. CNBC Africa had an exclusive interview with Pitan Jaguna, the acting CEO of the SACCO Society Regulatory Authority, to delve deeper into the implications of these new regulations. The regulations, known as the SACCO Society's Deposit-Taking Regulations 2020, are part of the SACCO SACCO SACCO Act of Parliament, SACCO SACCO SACCO 2020, 008. These regulations signify a crucial step towards expanding the regulatory oversight of SACCOs, ensuring a level playing field and safeguarding the interests of SACCO members. Kenya's SACCO sector comprises two tiers, with deposit-taking SACCOs operating similar to banks by accepting demand deposits through various digital platforms. The newly introduced category of SACCOs, which do not provide banking services, are now subject to prudential supervision under the revamped regulations. The need for these regulations stems from the emergence of fringe operators taking advantage of the regulatory gaps, putting members at risk of financial loss. By enforcing prudential standards focusing on capital, liquidity, loan quality, governance, technology, and infrastructure, these regulations aim to uphold the credibility and reliability of SACCOs in Kenya. The implementation of prudential supervision will enable closer monitoring of the sector's performance and enhance the industry's overall soundness and stability. With SACCOs contributing around a quarter of the total sector assets estimated at $8 billion, the new regulations are deemed crucial for ensuring the continued trust and confidence of members who rely on SACCO services. Another significant development outlined in the revised legislation is the provision for a deposit guarantee fund, which acts as a safety net for SACCO depositors in the event of a SACCO's insolvency. This measure, coupled with prudential provisions, aims to bolster depositor confidence by ensuring government-backed protection for deposits up to a specified limit. The establishment of the deposit guarantee fund aligns Kenya's SACCO sector with global banking standards and underscores the government's commitment to fortifying the financial resilience of SACCOs. By providing compensation mechanisms akin to those enjoyed by banks in Kenya, the deposit guarantee fund is expected to attract more deposits and enhance the competitive landscape of the SACCO industry. Additionally, the introduction of a central liquidity management facility is poised to facilitate inter-SACCO borrowing, promoting liquidity pooling and resource sharing among SACCOs. While the concept is still being finalized, the central liquidity facility aims to address liquidity challenges and support SACCOs in managing their financial obligations effectively. Through technology-driven platforms and stringent risk management mechanisms, SACCOs will be equipped with the necessary tools to navigate liquidity issues and enhance financial stability across the sector. The overarching goal of these regulatory changes is to bring greater cohesion, transparency, and resilience to Kenya's SACCO sector, ensuring sustainable growth and member satisfaction. By aligning SACCO operations with best practices and international standards, the new regulations are set to elevate the industry's standing and foster a culture of accountability and trust among stakeholders.