The Saccos regulator is requesting that the current law be amended to provide a framework for appointing trustees to supervise a Deposit Guarantee Fund (DGF) to protect depositors against losses on their over Sh600 billion in deposits.
Thursday, Treasury Cabinet Secretary Njuguna Ndung’u announced that the Sacco Societies Regulatory Authority (Sasra) is proposing an amendment to the 2008 Sacco Societies Act that will, for the first time, help defend depositors against losses.
The Act stipulates the establishment of a deposit insurance fund for credit unions, but the scheme has never been implemented. Sasra operations began in June 2010.
“There has been no resolution mechanism for Saccos in financial distress. Prof. Ndung’u stated that Sasra has proposed an amendment to the 2008 Sacco Societies Act to provide a framework for the appointment of DGF trustees for Saccos in Kenya.
The Sacco Deposit Insurance Program is Revived Thanks to Sasra
The sector implemented prudential guidelines to improve the financial stability of Saccos twelve years ago, thereby increasing savings. Unlike the financial and insurance sectors, however, Sacco members have been left vulnerable.
Deposit-taking Saccos alone held Sh616.98 billion at the end of last year, compared to Sh341.91 billion five years prior, indicating that the Sacco movement, one of the most dynamic in Africa, continues to expand.
Section 55 of the Sacco Societies Act establishes the basis for establishing a DGF to protect members’ deposits of up to Sh100,000, excluding shares, in the event that a Sacco fails due to liquidity issues or poor governance.
Sasra views DGF, a type of deposit-insurance scheme, as a crucial infrastructure pillar for bolstering the savings culture by enhancing depositors’ confidence and trust.
By underwriting Sacco deposits, credit unions will join the ranks of banks and insurance companies that have plans to compensate depositors and policyholders in the event of the failure of a financial institution.
Kenya Deposit Insurance Corporation compensates bank depositors and deposit-taking microfinanciers up to Sh500,000 promptly following the failure of a bank, with the remainder contingent on what is recovered later.
The Policyholders Compensation Fund reimburses Sh250,000 per policyholder for insolvent insurance companies.
A deposit insurance program is anticipated to revolutionize the lucrative Sacco industry by shielding members’ deposits from unanticipated dangers.