Wananchi Opinion: Are SACCOs no longer a secure option for savings in Kenya?

Savings and Credit Cooperative Organizations (SACCOs) play a crucial role in Kenya’s financial sector, offering an alternative to banks for saving and accessing credit.

They have become popular due to their relatively low-interest loans, member-oriented approach, and ease of access compared to traditional banks.

However, despite these advantages, SACCOs are not necessarily the most secure option for savings. Several challenges make them a less reliable choice compared to commercial banks.

Weak Regulatory Oversight. One of the major concerns with SACCOs in Kenya is the regulatory environment.

While SACCOs are regulated by the SACCO Societies Regulatory Authority (SASRA), not all of them fall under its strict supervision.

Many SACCOs operate under less stringent guidelines, particularly those that are not deposit-taking.

This means that some SACCOs may engage in risky financial practices without adequate government scrutiny.

Unlike banks, which are heavily monitored by the Central Bank of Kenya (CBK) and required to maintain strong financial reserves, SACCOs have fewer compliance requirements, increasing the risk of financial instability.

Financial Mismanagement and Governance Issues. Cases of financial mismanagement are common in Kenya’s SACCO sector.

Poor leadership, lack of transparency, and internal corruption have led to the collapse of several SACCOs, leaving members unable to access their savings.

In some instances, officials misuse members’ contributions or engage in reckless lending, leading to liquidity problems.

Because SACCOs are primarily run by elected officials who may not always have strong financial management skills, they are vulnerable to poor decision-making that can negatively affect members' savings.

Liquidity Problems and Withdrawal Restrictions. Liquidity issues are another major concern with SACCOs.

Unlike banks, which have access to larger financial reserves and interbank borrowing options, SACCOs rely mainly on members’ deposits and loan repayments to maintain their cash flow.

If too many members withdraw their savings at the same time or if many borrowers default on their loans, a SACCO may struggle to meet withdrawal demands.

In some cases, SACCOs have been forced to delay or even deny withdrawals due to cash shortages. This is a major risk for individuals who rely on SACCOs for emergency savings.

Higher Risk of Fraud and Collapse. Fraud and financial scandals are significant threats to SACCO members in Kenya.

There have been multiple reports of SACCOs collapsing due to fraud, mismanagement, or embezzlement of funds.

In some cases, officials create fake loan accounts, manipulate financial records, or siphon off members’ savings.

Unlike banks, which have stronger internal control mechanisms and security measures, SACCOs are often more vulnerable to internal fraud due to weaker oversight and governance structures.

Limited Deposit Insurance Coverage. Another key concern with SACCOs is the lack of adequate deposit insurance. While banks in Kenya are covered by the Kenya Deposit Insurance Corporation (KDIC), which guarantees deposits for account holders, SACCO deposits do not enjoy the same level of protection.

Some SACCOs have internal guarantee schemes, but these are often insufficient to cover members’ deposits in the event of a financial crisis. If a SACCO collapses, members risk losing all or a significant portion of their savings.

Limited Access to Modern Banking Services. Compared to commercial banks, SACCOs often have fewer technological advancements in banking services.

Many SACCOs do not offer real-time mobile banking, online banking, or advanced security features such as biometric authentication. This limits convenience and increases the risk of cyber threats and fraud.

Additionally, since SACCOs are less integrated with international banking systems, accessing funds while traveling or conducting international transactions is more challenging compared to using commercial banks.

Unclear Policies on Interest and Dividends. SACCOs attract members with promises of high dividends on savings and shares, but the actual returns can be unpredictable.

Since SACCOs operate on a profit-sharing basis, members only receive dividends if the organization performs well financially.

Unlike banks, where savings accounts have fixed interest rates, SACCO returns can fluctuate due to market conditions, governance issues, or mismanagement. In some cases, SACCOs fail to pay dividends altogether, leading to disappointment among members.

It is noteworthy that while SACCOs provide an important alternative for savings and credit, they are not the most secure option for savings in Kenya.

For individuals seeking safety and stability for their savings, banks remain a more secure option due to their strong regulatory oversight, deposit insurance, and access to modern financial services.

 However, for those who are willing to take on some risk in exchange for potentially higher dividends and low-interest loans, SACCOs can still be a valuable financial tool if chosen carefully.

Mr. Abol Kings is a personal finance coach and a former banker