Sasra jumpstarts Sacco deposit insurance plan

The Saccos regulator is seeking changes to the current law to provide a framework for appointing trustees to oversee a Deposit Guarantee Fund (DGF) to protect savers from losses on their over Sh600 billion deposits.

Treasury Cabinet Secretary Njuguna Ndung’u said Thursday the Sacco Societies Regulatory Authority (Sasra) is proposing an amendment to the Sacco Societies Act, 2008, that will, for the first time, help protect depositors from losses.

The Act provides for setting up a deposit insurance fund for credit unions, but the scheme has never been established to date. Sasra started operations in June 2010.

“There has been a lack of a resolution mechanism for financially distressed Saccos. Sasra has proposed an amendment to the Sacco Societies Act 2008 to provide for a framework for the appointment of trustees to DGF for Saccos in Kenya,” said Prof Ndung’u.

Twelve years ago, the sector rolled out prudential guidelines to help with the financial stability of Saccos, which has boosted savings. However, Sacco members have been left exposed, unlike in the banking and insurance sectors.

Deposit-taking Saccos alone held Sh616.98 billion at the end of last year compared with Sh341.91 billion five years earlier, pointing to the continued growth of the Sacco movement, one of the most vibrant in Africa.

Section 55 of the Sacco Societies Act sets the premise for establishing a DGF to provide protection for members’ deposits of up to Sh100,000, excluding shares, in the event that a Sacco collapses due to liquidity challenges or governance.

Sasra sees DGF, which is a form of deposit-insurance scheme, as a critical infrastructural pillar to bolster the savings culture by boosting confidence and trust among savers.

Underwriting Sacco deposits will see credit unions join the league of banks and insurance firms, which have schemes to compensate depositors and policyholders in the event of the financial institutions’ collapse.

Kenya Deposit Insurance Corporation compensates savers in banks and deposit-taking micro-financiers up to Sh500,000 immediately after a bank collapses, with the rest dependent on what is recovered later on.

The Policyholders Compensation Fund reimburses Sh250,000 per policyholder if an insurance company is declared insolvent.

A deposit protection scheme is expected to revolutionise the lucrative Sacco sector by insulating members’ deposits from unpredicted perils.

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