Why saccos now want to bypass employers in Sh3.4 billion non-remittance crisis

Saccos are seeking ways to bypass employers in the remittance of members' deductions, with the latest industry report by the regulator showing they are now owed a whopping Sh3.4 billion.

By acquiring licences to offer front office services (Fosa), large Saccos believe it will give them the capacity to deduct members' contributions and loan repayments directly.

Amid this move, the government is also pushing for smaller Saccos with deposits of less than Sh100 million to consider merging, a move that may aid them to offer Fosa.

The Sacco Societies Regulatory Authority (Sasra) also notes in its latest report that the traditional Sacco business model, where entities are symbiotic with employers, is proving unsustainable due to non-remittances.

In most organisations, employees form Saccos with the help of the employer as a savings platform.

The employer is then required to remit the employees’ statutory monthly contributions to the respective Sacco.

However, employers do not always keep their word. In extreme cases, when the business goes under or experiences cash flow issues, so does the Sacco.

According to the Sacco Supervision Annual Report 2024, non-remittances of deductions from employees’ salaries crossed the Sh3 billion mark from Sh2.59 billion in 2023.

A majority of these amounts, 74.50 per cent, are deductions related to loans taken by members.

County governments and assemblies lead the pack with Sh1.6 billion owed to Saccos as of December 2024, representing 46.07 per cent of total non-remittances.

This amount stood at 865.2 million in 2023, then representing 33.4 per cent of the total non-remitted amounts.

Public universities and tertiary colleges follow with Sh762.3 million, private sector companies (Sh433.9 million ), public sector companies (Sh265.8 million), state corporations (Sh164.8 million), and national government ministries (Sh129.7 million).

Corporate entities owe Saccos Sh37.4 million, churches and church-based institutions Sh18.3 million, public school’s employees (board of management) Sh16.1 million, private sector schools’ employees Sh14.6 million, constitutional bodies Sh6.8 million, private universities Sh5.9 million, and other entities Sh25.8 million.

Since the public sector, as the largest employer, is the leading culprit, there are plans by Sasra to ensure such deductions are made at source from the National Treasury through the Integrated Financial Management Information System (IFMIS), which acts as the government’s consolidated payroll.

“Given that the bulk of the non-remitted funds were owed by the government and government-owned institutions, the authority continues to call for policy reforms to allow the recovery of such sums directly from their exchequer grants at the National Treasury,” says Sasra chairperson Jack Ranguma in the report.

To move away from this endless loop of financial crisis, a section of non-withdrawable deposit-taking Saccos (NWDT-Saccos) is now seeking licences to operate as deposit-taking Saccos (DT-Saccos).

This means such Saccos will be operating not only back office services (BOSA) but also Fosa, which mimics a bank. This model will then allow employees to channel their salaries directly to the Sacco, where the deductions will be made, bypassing employers.

The report notes that a majority of regulated Saccos still use the traditional model as they are linked to employers. They, therefore, depend on the business to remit the deductions as Section 35 of the Cooperative Societies Act demands.

This Act allows an employee who is a member of a regulated Sacco to instruct their employer to make periodic deductions from their pay and remit the same to the entity. These deductions are either savings or loans taken by the employee.

Sasra adds that the concept of deduction and remittances is largely associated with employee-based or producer-based Saccos.

“Although the concept in practice has immense benefits associated with institutionalising the savings culture through the direct deductions from remunerations, and ease of debt collections by Saccos in respect of loans and credit facilities issued to them, it has had its draw backs and flaws when the employer-institutions makes the requisite deductions but fails to remit the same to the beneficiary Sacco Society,” the report says.

According to the report, the year closed with 355 regulated Saccos – 177 DT-Saccos and 178 NWDT-Saccos.

While discussing the growth in the asset base of the sector, which stood at Sh1.08 trillion as of December 2024, Sasra notes that the increase in the number of Saccos is linked to the licensing of former NWDT-Saccos to become deposit-taking businesses.

“The trend is likely to continue with large NWDT-Saccos seeking to expand their business lines to include deposit-taking business, with the result that the NWDT-Saccos segmental market share is projected to continue shrinking in all spheres of financial performance," the report says.

It adds: “The urge to expand the business lines to deposit-taking business is also informed by the need to address the non-remittances challenges by allowing their members to channel their salaries through the FOSA rather than reliance on the employer institutions to remit the deductions.”

The report shows the number of DT-Saccos has moved from 176 in 2022, to 174 in 2023, to 177 in 2024. This is while NWDT-Saccos, which stood at 183 in 2022 and 2023, fell to 178 in 2024.

Cooperatives and Micro, Small and Medium Enterprise (MSME) Development Cabinet Secretary Wycliffe Oparanya noted during the launch of the report that non-remittances have become a menace despite concerted efforts to deal with it.

He said the Sh3.49 billion is owed to 85 regulated Saccos, affecting 55,602 members.

“This has seriously undermined the financial stability of the affected Saccos, resulting in their inability to meet the obligations to members,” he said.

“It also impairs the capacity of the affected members to access financial services and products from their respective Saccos.”

The CS said it is the anticipation of the ministry that the Cooperative Bill, 2024 will be fast-tracked in order to provide a long-term solution to the affected Saccos.

“In the meantime, I do urge Saccos, especially the DT-Saccos, to adopt and implement the Administrative Circular issued by SASRA in 2019, on recoveries of member deductions through Fosa channels, rather than reliance on deductions by employer-institutions,” he said.