Sasra launches Sacco deposit Insurance program

In order to provide a framework for the appointment of trustees to manage a Deposit Guarantee Fund (DGF) to shield savers from losses on their more than Sh600 billion in deposits, the Saccos regulator is requesting changes to the current law.

Njuguna Ndung’u, the Treasury Cabinet Secretary, announced on Thursday that the Sacco Societies Regulatory Authority (Sasra) is putting forth a proposal to amend the Sacco Societies Act, 2008, which will help safeguard depositors from losses for the first time.

The Act calls for the creation of a deposit insurance fund for credit unions, but the program has not yet been implemented. Operations for Sasra began 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.

Savings have increased as a result of the sector’s implementation of prudential guidelines twelve years ago to help with Saccos’ financial stability. Sacco members have been exposed, in contrast to the banking and insurance industries.

Deposit-taking The Sacco movement, one of the most active in Africa, continued to grow as Saccos alone held Sh616.98 billion at the end of last year compared to Sh341.91 billion five years earlier.

The foundation for creating a DGF is laid out in Section 55 of the Sacco Societies Act. Its purpose is to protect members’ deposits up to Sh100,000, excluding shares, in the event that a Sacco fails due to issues with liquidity or governance.

DGF, a type of deposit-insurance scheme, is viewed by Sasra as a crucial infrastructure pillar to support the savings culture by increasing savers’ confidence and trust.

Credit unions will join the league of banks and insurance companies when they begin to insure Sacco deposits. These financial institutions have programs in place to compensate depositors and policyholders in the event that the financial institutions fail.

Savings in banks and deposit-taking microfinanciers are compensated by Kenya Deposit Insurance Corporation up to Sh500,000 immediately following a bank failure; the remaining amount is based on what is later recovered.

If an insurance company is found to be insolvent, the Policyholders Compensation Fund reimburses each policyholder Sh250,000.

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