A major financial scandal has rocked Kenya’s Savings and Credit Cooperative Organizations (SACCOs), jeopardizing member funds and raising concerns about potential bank runs.
SACCOs are member-owned financial institutions prevalent in Kenya, providing savings and credit services to promote financial inclusion, especially in underserved communities. The SACCOs are a popular means for regular people to grow their finances, turning to the hundreds of SACCOS as investment avenues.
The institutions are highly popular attracting an average of KES 11.75 billion ($74 million) in new deposits each month. In 2023, deposits by Kenyans in Savings and Credit Co-operative Societies (SACCOs) crossed KES 1 trillion ($6.3 billion) mark for the first time accounting for over 7% of Kenyan GDP.
SACCOs, Accounting for 7% of Kenyan🇰🇪 GDP, Set to Join the National Payment System and Establish Inter-SACCO Lending Market – https://t.co/Zel1e6CtCZ
— Africa Updates (@africaupdates) April 13, 2023
Such is their rising influence that plans are even underway to set up a central liquidity facility to enable them to lend to each other, same as interbank lending.
🇰🇪 MILESTONE | Kenyans Deposited a Record $6.3 Billion in SACCOs in 2023, Thanks to Digital Adoption
Savings and Credit Cooperatives (SACCOs) in Kenya are a popular means for regular people to grow their finances, turning to the hundreds of SACCOS as investment avenues.
These… pic.twitter.com/QotfUm0CU7
— BitKE (@BitcoinKE) January 3, 2024
Some popular Kenyan deposit-taking SACCOS include:
- Unaitas SACCO
- Kenya Police SACCO
- Stima SACCO
- K-Unity SACCO
- Waumini SACCO
KUSSCO Scandal
The Kenya Union of Savings & Credit Co-operatives (KUSCCO), the umbrella body overseeing these SACCOs, has been implicated in a massive fraud amounting to approximately KES 13.3 billion (about USD $120 million).
A recent forensic audit conducted by PricewaterhouseCoopers (PwC) uncovered extensive financial mismanagement, including falsified financial statements, unauthorized withdrawals, and large-scale theft by senior executives. This malpractice has rendered KUSCCO insolvent by KES 12.5 billion ($97.2 million), placing deposits from 247 SACCOs, totaling KES 24.8 billion, at significant risk.
The audit revealed that top executives, including former Managing Director George Ototo, Finance Manager George Owino, and Chairman George Magutu, manipulated financial records to conceal losses and misappropriations. Notably, the 2022 financial report bore the forged signature of a deceased auditor, further highlighting the depth of the deception.
Several prominent SACCOs have been notably affected:
- Mwalimu National SACCO – Assets: KES 66.43 billion ($516.9 million), advised to set aside provisions for potential losses
- Stima SACCO – Assets: KES 59.15 billion ($460.3 million), wrote off KES 108 million ($840K) due to the scandal
- Kenya National Police DT SACCO – Assets: KES 54.24 billion ($422.2 million), significantly exposed as a top shareholder in KUSCCO
- Harambee SACCO – Assets: KES 38.57 billion ($300.1 million), instructed to make financial provisions
- Kimisitu SACCO – Reported a massive write-off of KES 353.95 million ($2.74 million)
- LSK (Law Society of Kenya) SACCO – Invested KES 61.4 million in KUSCCO, recovered KES 42.18 million ($328k), but faces a KES 19.25 million ($149.8K) loss
- AMREF SACCO – Exposed to KES 90 million in the KUSCCO scandal
- Balozi SACCO Society Ltd – Exposure of KES 437.55 million ($3.4 million), including a 4% provision made
- Mhasibu SACCO – Faces a KES 480.6 million ($3.7 million) loss due to a fixed deposit maturing on Jan 16 2024 which KUSCCO failed to honor
- Tower SACCO – Had KES 101.5 million in KUSCCO savings in 2023 but withdrew it all in 2024. Meanwhile, they had KES 41.1 million in KUSCCO shares in 2024
- KENPIPE SACCO – Had KES 149.2 million in a fixed deposit with KUSCCO and KES 698,113 in Jungu Kuu savings. In 2024, they recorded an expected credit loss of KES 119.3 million for 12 months
In response to these revelations, the Kenyan government has initiated a crackdown on financial misconduct within the cooperative sector. Cabinet Secretary for Cooperatives and Micro, Small, and Medium Enterprises (MSMEs) Development, Wycliffe Oparanya, has handed over the forensic audit report to national security agencies, signaling the commencement of criminal investigations.
Oparanya emphasized the government’s commitment to holding those responsible accountable and implementing measures to prevent future occurrences.
The scandal has raised concerns about the stability of SACCOs across Kenya. With member funds at risk, there is an increased possibility of bank runs where a large number of members withdraw their savings simultaneously, potentially leading to the collapse of these institutions. To mitigate this risk, the government has advised SACCOs to adjust their financial statements to reflect potential losses and spread these losses over several fiscal periods.
Additionally, local banks have been urged to support affected SACCOs to prevent widespread insolvency.
The Kenyan government is also expediting the enactment of the Cooperative Bill 2024, aiming to tighten regulatory frameworks and improve governance within the sector. The outcome of this scandal will likely have far-reaching implications, not only for Kenya but also for cooperative financial institutions across Africa, highlighting the importance of transparency and accountability in safeguarding member assets.
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