BY NBM WRITER
Even though Saccos run their core business of mobilizing savings and advancing credit in the same economy where they face stiff competition from banks, there is a deep-rooted culture where Saccos have perfected the art of misappropriation and embezzlement of funds belonging to members. A case in sight is where a Sacco spends huge percentages of their funds in trainings and seminars that do not add value to the Sacco.
The tragedy of Saccos management committees
Why would you send an entire board of directors to a five star hotel in Mombasa from as far as Western Kenya for a training course on basic accounting for Saccos? It is more irritating to find out that some (if not all) of the members being flown to such trainings are more qualified and practicing accountants who don’t need such basic accounting training courses. There is no capacity building rationale to match skill-needs versus training.
Most Saccos management prefer to employ officers who cannot challenge their decisions.
This is meant to ensure that decisions are adopted without resistance or questioning. On the floor of the AGMs, the incumbent board members have made their duty to lobby for candidates who are less qualified. Even though Saccos are supposed to be under democratic control, the incumbents who are keen to retain ‘power’ will always stage-manage elections to have candidates of their own emerge victorious. In some Saccos, the spirit and letter of Chapter 6 of the Constitution on integrity has been contorted to an extent where existing boards appoint their cronies to lead vetting committee of potential candidates for board positions that will soon fall vacant for public relations purpose. This vetting committee then returns a verdict that all the potential candidates are not qualified to be board members. The end result is that members are told at the AGMs that there were no ‘suitable’ candidates to contest for those positions against the current holder. Consequently, incumbents are automatically re-elected “unopposed”.
Another strategy is that Saccos tend to co-opt fellow tribesmen to hide their thieving ways. You will notice that in ‘clever’ boards where they embrace gender parity and regional balance there is an invisible strategic move where the chair of the boards will place key point men from their tribes in the various subcommittees to retain influence, attract loyalty and cover opaqueness. For instance, a non-accountant being made the chairperson of a Supervisory committee, one whose role is to audit the operations and financial statements to ensure full compliance – a committee which by another term is the internal audit department of the Sacco. It begs the question; how will a non-accountant audit internal controls to detect fraud and malpractices without accounting knowledge and skills? That is the kind of unprofessionalism and mediocrity that is cherished in some Saccos.
Another key aspect here is the issue of lack of term limits for board of directors. Why would one serve in an elective board for more than two decades? Through lip service, they have created fear in members that they are the only set of managers who can steer the affairs of the Saccos professionally. Sadly, no member raises an alarm and if they do so they are quickly put-off like wild fires through stage-managed responses. This is a clear strategy to make sure that ‘you are the system and the system is you’ so that you can manipulate it to serve own interests. This is where corruption begins to be institutionalized. Eventually it becomes pandemic.
Uncommitted and gullible membership is the penalty spot for promoting mismanagement of resources, theft of members resources and all the other vices. Very few Saccos hold management to account at the AGM. Some Saccos are notorious for holding AGMs for less than four hours so that they can basically ‘run through’ the agenda and skip grilling by members. Saccos have devised a strategy where they only discuss ‘very important points’ (VIPs) on the agenda such as proposed budgets, because approved budgets are quickest way of executing white elephant projects. Such budgets are approved without much ado and at the tail end of the short-session AGMs when members’ energy levels are low to ensure that no one asks hard questions and if hard questions are asked then there should be no sufficient time to respond to them. By shortening the duration of AGMs, they cut-off debate on crucial items affecting Saccos which deserves greater attention by members. In the end, nobody interrogates the AGM agenda exhaustively. Unfortunately, this is the time rogue boards in the presence of ministry officials will quickly steer stage managed elections to elect unopposed incumbents with dubious performance and integrity records. Later revelations emerge that members who seem to ask ‘leading’ questions at those AGMs are coached by the management so that answers can be delivered in a way that ‘satisfy’ members. What puzzles most is the fact that educated members who can decipher such tricks remain silent and consent to those lies.
Lack of clear policy guideline for and on co-operatives is another serious setback. The failure of Saccos to realize their growth potential has partly been hampered by the current weak policies, rules and regulations. The Co-operative Act 2008, SASRA regulations and the by-laws adopted by various Saccos are not as punitive as expected and do not act as deterrents to rogue board members and chief officers. In fact, none of those individuals found culpable or implicated in looting the coffers or running down the Saccos have been arraigned in court or even prosecuted. This is partly due to the unpractical channels of addressing mismanagement issues. Some channels of dispute resolution are still dominated by members of the ‘system’ who ensure that the evidence available to prosecute them does not meet the necessary threshold. In the end, those who are supposed to be losers become winners and winners become losers. The vicious cycle goes on.
As alluded to earlier, the issue of using unpractical channels of addressing mismanagement issues remains a major challenge. The ever arising need of a Special General Meeting (SGM) is because ‘Annual General meeting is a supreme organ’ and during normal general meeting agenda is set by the existing officials who have discretion to add any other business to the AGM agenda. It is an arduous task for mere members of a Sacco to call or purport to call an SGM in the midst of frustrations and roadblocks placed by the sitting management committee members in case they suspect that they are being hunted for their evils.
Management committees in most cases are well networked and have connections with the officers and auditors in the ministry who can easily be manipulated into downplaying complaints raised by members. Since management committee positions are elective posts, sitting committee members can easily and quickly black mail complainants and term them as part of their opponent’s political schemes, thus making the truth difficult to be established.
Another challenge is the conflicting and overlapping roles of officials from the department of co-operatives; when they act as auditors, supervisors, investigators in matters related to misappropriations touching on the management committee – who are in turn supervised by same co-operative ministry officials and audited by another wing of officials in the same department of co-operative societies. In the event of collusion between management of a Sacco, co-operative supervisors, and co-operative auditors in case of theft of members funds, then accounts are cooked to show that a Sacco is healthy. Handling of big mismanagement issues and misappropriation of members’ money rests with the commissioner of co-operatives who still has to rely on his own staff to address the issues.
In fact, such audits ought to remain independent and should be carried out by independent practicing auditors who are members of ICPAK and ministry officials from the department of co-operatives should not be involved in external audits of Saccos to guarantee independency, and at the same time provide reliable checks and balances for the betterment of Saccos.
Another bottleneck is the issue of pricing loans. The usual 12 per cent charged on normal loans remains so rigid in the face of decreasing bank rates and vice versa. While commercial banks interest rates are largely dictated by the Central Bank’s Monetary Policy Committee, one would imagine that Saccos management would exercise financial prudence to adjust their interest rates to make their cost of credit affordable to ordinary members and effectively lure their members into their loan book. As the loan book grows, there should be stringent mechanisms in place to ensure that non performing loans are monitored and sufficiently provided for in the income statements to avoid declaring imaginary profits. Provision of bad debts must be re-examined and sealing of potential sources of bad debts must be done.
Unfortunately, Saccos have been unable to position their savings and credit products to the public to tap into the majority of Kenyans especially the unbanked. As Saccos evolve into large financial institutions, profitability then becomes a very important cornerstone of their existence. To achieve optimal profits as their counterparts in the financial sector, Saccos need to price their products competitively to win over more Kenyans – both banked and unbanked. The word profit will cease to be a ‘taboo’ as long as increased profits translate into better products and services for the communities that the Saccos serve.
Even though the industry is oozing with management filth, there are all indications that things could just be better in future. Better days are ahead for the Saccos. The Constitution through chapter six continue to demand leaders of integrity in management circles across the country, Saccos are no exception. The board members and chief officers are now on the spotlight; soon the lights will go-off on their cunning ways. This message could not have been put better last year when the Cabinet Secretary for the National Treasury Mr Henry Rotich while reading the 2015/16 budget speech proposed to amend the Sacco Act to allow SASRA to undertake vetting of directors and key officers of Saccos. The same should be done for BOSA’s. This is a grand step forward. It will be a shot in the arm in professionalizing management of Saccos in Kenya.
The virgin Diaspora market
The Diaspora market which is a source of diaspora remittances remains a key frontier for Saccos’ growth too. Remittance is money sent by a person in a foreign land to his or her home country. Due to the huge sums involved, remittances are now being recognized by policy makers as an important contributor to the country's growth and development.
According to a World Bank report, Kenyans in diaspora sent Kshs 163 billion in 2015 which is a 16.5 percent increase from Kshs 139 billion recorded in 2014. The diaspora market is a multibillion market that Saccos could tap huge member deposits from thereby increasing their core capital, oil their liquidity and create sufficient pool of funds to advance members at an affordable interest rate. Kenya is among the leading Sub-Saharan African countries in terms of growth of remittance flows from the diaspora. Saccos that will unlock their diaspora potential are in a better position to withstand industrial headwinds and position themselves for growth in membership, deposits and loan advancement – the three key drivers of growth.
On effective policy, regulation and supervision, the recent appointment of a substantive Principal Secretary for co-operatives Mr Ali Noor at the ministry of industrialization and enterprise development is a major step forward. He will be able to steer the sub-sector’s policy formulation and implementation especially in this new Constitutional dispensation particularly with respect to devolution. This will breathe a new lease of life in the management of the co-operative movement in the country. However, there is still some hue and cry that the department should be made a stand-alone ministry to serve the interests of co-operators even better.
Finally, to ensure that Saccos do not collapse, experience run ons, avoid being placed under statutory management or in a life support machine, do not experience liquidity pressures and mismanagement, there is need to place the supervision of Saccos under a strict, disciplined, professional and respected regulatory body with teeth to bite such as the Central Bank. Afterall, one of the core functions of Central Bank is to foster the liquidity, solvency and proper functioning of a stable market-based financial system within the economy – to which Saccos belong.
The vouching of an independent regulator who can inject liquidity, monitor Saccos operations, apprehend rogue management, inspect financial statements and protect the interests of members is a long overdue idea whose time has come. This will wash away existing anxiety and bring back confidence to all the players in the financial sector for a sub-sector that has the potential of helping the country achieve the aspirations of the Vision 2030. Any amendments to the Central Bank Act to include Saccos in their supervisory role will certainly guarantee stability and inspire confidence in the Saccos industry.
All said and done, it is not all doom and gloom after all. We must celebrate the few management boards and chief officers who work tirelessly and genuinely to better the lives of their members in the true spirit of co-operators. Let us be spot on, amidst the rot that is deeply entrenched in the sub-sector there are Saccos within the co-operative movement that are managed in a professional manner with board members and chief officers of impeccable character. The Saccos they manage continue to grow in profitability yearly guaranteeing their members hefty return on their shares and deposits in form of dividends and interest respectively. Those Saccos have employed professional staffs who serve their members diligently. They have strong internal control systems that can detect theft of shareholders funds effectively. In these Saccos, the election of board members is done in a transparent manner with strict adherence to term limits and Key Performance Indicators that are monitored by the members and heavily evaluated at the AGMs. Their AGMs are held professionally and calmly from morning to evening with strict, open and exhaustive discussions of the agenda. For such Saccos, AGMs are purely members’ affair. Members ‘own’ the AGM unlike rogue ones where board members and chief officers instead ‘own’ the AGMs. These well-managed Saccos deserve praise. They actually understand in practice why Saccos were formed – to better members’ lives. They deserve to be honoured for they remain dedicated to their members’ courses in an industry where man eats man. Of the two clusters, which one best describes the Sacco you belong to? If the former, be the change that you would like to see. The buck stops with you.