Division of Co-operative Finance and Banking

Mandate of The Division

The Division is mandated to provide an enabling environment through formulation and implementation of policies and guidelines that aim at sustaining financially sound and efficiently managed SACCO Sub-sector.

The Co-operative Business Model is the best vehicle of mobilizing savings among the poor and the middle class. This is informed by Co-operative philosophy of people assisting others.

The Co-operative unique identity compared to other forms of businesses is that the members are co-owners of the enterprise and when the society engages in business, the motivation is to make profit but more importantly is service to members. The profits realized are shared among the members on pro-rata basis as dividends.

The poor are able to access credit using their deposits and security of guarantors as opposed to use of assets as collaterals.

This enables the poor to build up savings and access credit which makes them financial enablers.

The co-operatives have an advantage over other financial institutions due to geographical spread of their membership when compared to banks whose outreach is limited to branch network. Thus making Co-operatives to reach the poor segment of the society more effectively.

Specific functions of the Division

  • Formulation, coordination and implementation of Co-operative Policies for SACCOs.
  • Formulation, Coordination and implementation of Co-operative financing policy.
  • Regularly issuing operational prudential guidelines and regulations for SACCO Societies.
  • Maintaining and managing Savings and Credit data bank for SACCOs.
  • Promoting an efficiently managed SACCO sub-sector.
  • Undertaking co-operative societies insurance needs assessment to ensure protection of SACCO deposits and savings.
  • Provision of consultancy and advisory services on saving, credit, investment, financial product development and diversification for SACCO Societies.
  • Promotion of financial investment and financial product development.
  • Assisting the SACCO to recover SACCO dues held by defaulting employers by issuing demand and agency notices as provisioned in section 35 of Co-operative Societies Act, Cap 490 Laws of Kenya.
  • Approving the borrowing powers of co-operative Societies and exercising control to limit external borrowing thus encouraging mobilization of savings among the membership.
  • Approving the terms and condition of service of the Co-operative movement personne

Current Status

The SACCO Sub-sector is a key player in realization of vision 2030 of mobilizing savings for Kenya’s investment needs. There are 5000 registered SACCOs with 230 operating Front Office Service Activity (FOSA). The SACCOs have mobilized savings to the tune of Ksh. 420 billion with an asset base of Kshs. 500 billion. The savings account for 35% of the national savings.

The Front Office Services Activity has emerged as a major investment activity for Co-operative Societies offering financial services. This has enabled the SACCOs to compete effectively with commercial banks and other financial institutions. The financial operations of FOSAs’ involve handling a huge financial portfolio from both members and non-members.

There are over 500 transport SACCOs which will play key role in the transport sector by way of savings mobilization and instilling discipline in the matatu sector.

The savings mobilization is expected to double in the next few years arising from registration of SACCOs for Kenyans in the diaspora. This initiative is aimed at affording Kenyans in the diaspora an avenue for remitting savings in a structured manner to facilitate effective intermediation between savings and investments. At the same time the savings so mobilized will provide a pool of funding to facilitate investments locally. This will in a way limit reliance on donor funding.

The Kenyan SACCO Subsector was recognized in the recent WOCCU 2013 conference in Canada and won 1st award in the category of the fastest growing SACCO movement globally.

The overall objective of the Division of Co-operative Finance and Banking is to develop an efficient and professionally managed co-operative financial services system which embraces the co-operative business model, principles, values and ideals. This specifically aims at:-

  • Improving access to financial services by increasing SACCO outreach, financial product development, diversification, better customer service, adopting prudential standards and adherence to a legal regulatory framework.
  • Encouraging SACCOs to form strategic alliances, linkages and networks through which members can access financial services from partner institutions at competitive market rates.
  • Creating high standards of professional leadership, operational efficiency and stability in the SACCO Sub-Sector through adoption of good corporate governance and adherence to prudential standards.

The Envisaged SACCO Reforms

The Government recognizes that SACCO reforms are a prerequisite to facilitate savings mobilization among low income households who have no access to Commercial Banks.

In this regard, the Government has put in place structures which aim at diversifying avenues for savings mobilization, setting standards and enforcement mechanism to improve the financial management, soundness of SACCOs thus facilitating protection of members’ savings. In order to promote rapid growth of SACCOs the government targets to:-

  • Promote the development of new savings and credit products that encourage mobilization and proper utilization of Savings.
  • Encourage the formation of more SACCOs to mobilize domestic financial resources and those of Kenyans in the diaspora.
  • The reinvestment of mobilized resources in the local areas to improve sustainability.
  • Formulating credit and loan policy guidelines and procedures.
  • Putting in place policies that encourage SACCO members to increase savings mobilization by setting minimum deductible SACCO share contributions in the range of 5-10% of the net earnings to increase loanable funds to meet members’ credit requirements.
  • Encourage establishment of SACCO bank to cushion SACCOs from exploitation by Commercial Banks when in need of excess funds for on-lending to their members.
  • Ensuring that marketing agents and employer who deduct members proceeds but fail to remit to the respective societies on time are made to do so and make such delayed actions economic crimes punishable under co-operative law and or criminal law or both.
  • Encouraging SACCO to set up a window on stock exchange market where SACCO Sector can sell, buy and value their shares.
  • The SACCOs are also encouraged to develop innovative financial products and services as incentives to attract savings from members.

Restructured Division of Co-operative Finance And Banking

The Division of Co-operative Finance and Banking falls under the directorate of Co-operative Development and Marketing within the Ministry of Industrialization and Enterprise Development. It has three key units as outlined below:-

1) Co-operative Credit Unit

The unit will be responsible for:-

  1. External rural and urban finance services.
  2. Internal finance services.

2) SACCO Development Unit

The unit will be responsible for:-

  1. Salary based SACCO development
  2. Community based SACCO development
  3. Informal sector SACCO Development
  4. Diaspora SACCO Development

3) Inspectorate Unit

The unit will be responsible for:-

  1. Banking inspectorate services.
  2. Banking development services

The said structure has not been fully operationalized to due to shortage of officers in the Ministry.

In view of the importance of the SACCO sub-sector in realization of vision 2030 and registration of SACCOs for Kenyans in the diaspora, there is urgent need to fully operationalize the workings of the Division.