As banks face scrutiny, Kenya’s corrupt turn to credit unions

First published 02 March, 2025

It’s disheartening to see how Kenya’s credit unions, popularly known as Saccos (Savings and Credit Cooperative Organisations), are now grappling with some serious financial issues. These Saccos manage approximately KES 759 billion ($5.9 billion) in loans across 357 regulated entities that serve 6.84 million members.

These are huge figures by Kenyan and African standards, with 70% of Africa’s Saccos based in Kenya. The country has the largest Sacco industry on the continent by asset size, with over 13,500 Saccos. Regulated Saccos collectively hold $4.36 billion in savings and shares, with total assets reaching $6.20 billion. The sector’s penetration rate stands at an impressive 20.7%.

You can’t be faulted if you don’t understand why Saccos are so big in Kenya (they have been instrumental in helping households pay school fees, build homes, and accumulate some wealth).

Traditionally, and maybe through no fault of their own, banks prioritise their biggest clients, so they often leave ordinary customers as an afterthought. A bank’s goal isn’t just to hold your money but to extract as much of it as possible through endless fees and hidden charges. Tough but understandable.

Worse, the relationship is adversarial rather than supportive. If there’s ever a dispute, the bank assumes you’re wrong. As profit-driven institutions, banks aren’t in the business of serving customers but maximising returns, often through temporary perks as bait before imposing harsher terms. While they follow regulations, they do the bare minimum, and offer no flexibility, fairness, or even basic courtesy unless absolutely necessary. This is where Saccos come in, where mutual respect is the rule rather than the exception.

However, take the recent KUSCCO fiasco, for instance. The Kenya Union of Savings and Credit Cooperatives, Kenya’s Saccos’ umbrella body, is under the microscope for alleged financial mismanagement that has cost Sacco members (note, Saccos refers to them as ‘members’ rather than ‘customers’) over KES 13 billion ($101 million). A forensic audit by PwC was handed over to the Inspector General of Police to start investigations into these irregularities. The cabinet secretary (minister) for Cooperatives and MSMEs, Wycliffe Oparanya, promised stern action against anyone guilty of misappropriating members’ funds.

But here’s where it gets murky. Despite these bold declarations, there’s a lingering sense that Kenya’s Sacco financial regulations are intentionally lax and have created a playground for the corrupt since at least three similar Sacco corruption cases were reported in 2024 alone. It’s as if the system is designed to be porous, which has allowed grand corruption cases to go unpunished.

Some Saccos have partaken in dubious activities, including taking out bank loans to pay dividends, which contradicts sound financial management principles and jeopardises the cooperative movement’s stability.

There are alarming disparities in dividend distributions across the sector, with some Saccos offering rates exceeding 20%. While attractive in the short term, such high payouts can mask underlying financial issues and threaten long-term sustainability.

The Central Bank of Kenya (CBK) has mandated that banks increase their core capital from KES 1 billion to KES 10 billion by December 31, 2029, with annual increments between KES 1 billion and KES 2 billion. In contrast, deposit-taking Saccos are required by the Sacco Societies Regulatory Authority (SASRA) to maintain a minimum core capital of only KES 10 million. This disparity underscores the more relaxed regulatory environment governing Saccos.

The government plans to oversee the appointment of Sacco directors and impose term limits to enhance corporate governance. The plan may address issues such as embezzlement of members’ savings and failure to refund share capital to exiting members.

Comprehensive reforms are desperately needed if policymakers and stakeholders are serious about safeguarding members’ interests and rescuing the sector’s already decaying public perception.

Aligning Sacco regulations more closely with those of traditional banks seems to be an obvious step since it can help mitigate risks associated with financial mismanagement and corruption. Dividend policies that tie payouts to actual financial performance can prevent the unsustainable high returns that some Saccos offer, which is also a policy that can protect members’ savings.

Otherwise, the Sacco sector will remain vulnerable to ongoing corruption and financial instability and undo good work about financial inclusion and economic growth for people who reaped from them at a time when banks did not welcome them.

Kenn Abuya

Senior Reporter, TechCabal

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