SASRA: Protecting Kenya’s Economic Growth Through Prudential Supervision

Established pursuant to the provisions of the Sacco Societies Act, No.14 of 2008, the SACCO Societies Regulatory Authority (SASRA) is the Government’s principal agency responsible for the supervision and regulation of SACCO Societies in Kenya. The Authority’s principal mandate is to license SACCO Societies to undertake Deposit Taking Business in Kenya (FOSA) and to Supervise and regulate both Deposit Taking and Specified Non-Deposit Taking SACCO Societies. With a vision to be the distinguished regulator of a financially inclusive and stable SACCO industry, SASRA is on a mission to efficiently and effectively regulate, supervise and develop the SACCO industry by promoting sound business practices in order to enhance financial stability, growth, access and member protection as Chief Executive Officer CPA (Mr.) Peter Njuguna narrates to Corporate Watch Magazine’s Ker Mogallo.

Now falling within the State Department of Co-operatives under the Ministry of Co-operatives and Micro, Small and Medium Enterprises (MSME) Development, the SACCO Societies Regulatory Authority (SASRA) has since its establishment been at the forefront of championing financial inclusion and member protection.

Speaking to Corporate Watch Magazine in an exclusive interview at the Authority’s offices, Chief Executive Officer Mr. Peter Njuguna (CPA) affirmed the institution’s commitment in delivering its mandate.

“I have been here now a dozen years. It happens that I was the first employee of the Authority and was in charge of supervision and licensing of Deposit Taking Saccos thus implementing the Sacco Societies Act and the regulations in the year 2010. It has been a privilege and an honor implementing a new government policy as a junior officer up to this point where now I am the institution’s CEO,” Mr. Njuguna said.

On 7th March 2011, SASRA licensed the first batch of seven Deposit Taking Saccos marking the beginning of prudential regulation of SACCOs in Kenya and the East Africa region.

In the beginning, there arose the question of what is prudential supervision and how different is it from the regulation and supervision that was happening under the co-operatives societies Act.

“The Saccos Societies Act is a business specific regulation. When I Say business, I am underscoring the fact that you are doing Sacco business, you are not doing daily production and marketing which a co-operative will be registered to do. It is a very specific business and that is why the Sacco society’s Act came in.

Section 23 of the Act also says that we license under the Sacco Society’s Act, Sacco Society’s duly registered under the co-operative societies Act. This means that a SACCO is first and foremost a co-operative so it has to observe the governance by the Cooperative Society’s Act.

It is however the business side where we say look, we want you to run things this way, and these are the standards of performance.” Explained the CEO who holds a Master of Science in Management Science from the London School of Economics in the UK and a Bachelor of Science in Mathematics from the University of Nairobi.

He added that the prudential supervision ushered in prudential standards as well as new operating standards that are appropriate for the business of collecting deposits and lending money, very much borrowed from the banking industry.

 

The Blueprint
Prior to joining the Sacco Societies Regulatory Authority in the year 2010, Mr. Njuguna worked with the World Council of Credit Unions’ (WOCCU) in Kenya where he was expansively involved in developing the management and technical capacity of SACCOs including institutional assessment, development of strategic business plans, organizational restructuring, developing policies and procedures, training, and implementation of program activities.
From June of 2010, Mr. Njuguna led the Supervision team at SASRA in formulating and implementing regulatory and supervisory strategies towards safe and sound Sacco subsector in Kenya. Now that he is at the helm of the organization, his drive to take the institution to even greater heights is unmatched.

“Our strategic plan 2023-2027 is aligned with the government’s plan. We have already worked on the blueprint and are heading to stakeholder engagement. The vision still remains financial stability because we cannot run away from our mandate, but we envision an industry that is member centric and stable.

However, it has to be noted that financial inclusion has dimensions, it is not just about access, it is also about the quality of products offered as well as the usefulness of products to members,” noted Njuguna.

At the end of the day, stability of the financial sector as the authority’s mantra, is a key factor in the stability of the economy. Aligned to that vision, the regulator has coined ‘I Impact’ focusing on how SASRA is impacting the industry that it serves. This is centered on innovation, integrity, professionalism, accountability, team work, collaborations and mutual respect.

“Our strategic plan gels well with the government’s agenda because SACCOs by their design have all hustlers in the SMEs space. We also focus on areas where we bring in the developmental agenda and the long haul capacity to deliver. Cybersecurity, technology risks, governance risks also form part of our plan focusing on how to retool ourselves, going more digital to escalate efficiency and ensuring we are able to finance these processes,” he said.
Previously, Mr. Njuguna who is also an accountant and a member of the Institute of Certified Public Accountants of Kenya (ICPAK) served as a member of the Technical Committee of Kenya’s Joint Financial Sector Regulators Forum (JFSR) which brings together the Central Bank of Kenya and the Regulators for SACCOs, Retirement benefits, Insurance, and Capital markets industries in promoting information sharing and addressing cross-cutting policy issues.

“My strategy is to create an environment where the Saccos will put government to account on the actions it has taken to rescue failed Saccos. I want to spearhead the conversation on what the Sacco industry is doing about the weak Saccos. We are also pushing for the set-up of the Deposit Guarantee Fund (DGF). These will solve systemic market problems going forward.”

Mr. Njuguna reiterated that the issue of market engagement is very critical as Saccos, if engaged, come up with solutions such as strategies to raise financial literacy levels. “The regulator should not be seen as ‘the guy who comes to whip people’ but actually holds your hands to help solve problems,” he added.

On the technological front, the SASRA CEO noted that while co-operatives are innovating and increasingly serving members products and services in the digital space, there are a lot of loopholes that still need to be filled to improve cyber security.

Resource Demand vs Revenue…
To widen its revenue basket, the authority has increased the number of SACCOs it licenses from 175 to 359. Initially after the raise, there were 361 by close of 2022 but two SACCOs licenses were not renewed. The strategic focus remains inclusion and member value. Recently, the authority published a list of SACCOs that had been successfully duly licensed.

“Publication is a legal requirement to communicate to the public that the SACCOs are authorized and one can do business with them. The performance of regulated SACCOs is determined by a standard in law, prudential standard, with defined structures. It gives a standard against which members and the Board of Directors can hold their SACCO to account.” Proclaimed the CEO with 20 years of diverse and rich professional experience in the financial sector, both in the market and regulatory space.

The law is clear that SACCOs that don’t meet the licensing threshold cannot continue operating. “We have had to be very flexible, the law provides for provisional authorization or authorization on conditions. No regulator expects those regulated to be 100 per cent compliant, we have however to implement the law to create a level playing field for all players.” Added Njuguna who was the convener for the Task Force appointed by the Cabinet Secretary for Co-operatives in Kenya to develop the regulations for the non-deposit taking Sacco Societies which were published in May 2020.

As a regulator, SASRA gets its funding from revenue from the regulated institutions, however, the financial backing has been inadequate thus limiting the regulator and its operations. On this regard, SASRA is introducing a 0.10 per cent levy that the regulated NWDTS will be paying every year.

“The specified Non-Deposit Taking Business is such that you are trading with what is traditionally called the back-office, where members contribute their money and only invest in loans. NWDTS don’t take demand deposits, which by their design pose a greater risk.

We were conscious to differentiate these regulations knowing that in terms of reporting, NWDTS do it quarterly unlike DTS which report monthly and, in some instances, daily. NWDTS are expected to report at the end of every quarter, which means that the regulatory burden on these SACCOs is lighter,” said Mr. Njuguna who is part of the SASRA team leading the project on a shared technology platform for SACCOs.

“Our options were to engage the market as provided in law. The basis of this levy is the law and the government’s fiscal policy. This means that as a regulator we are expected to have some degree of autonomy. After due consideration, we decided to base the levy on the deposits primarily because we wanted to have a stable base that does not change drastically,” he added

In terms of prudential standards, Deposit Taking SACCOS and Non-Withdrawable Deposit Taking SACCOs differ only in core capital and liquidity. NWDTS are expected to maintain core capital of 8 per cent of the total assets and liquidity of not less than 10 per cent of the SACCO’s non-withdrawable deposits.

SACCO Central…
SASRA has been pushing for the realization of the Deposit Guarantee Fund, the Central Liquidity Facility and the Shared Platform Services commonly known as SACCO Central to aid prudential regulation.
The initiative is supported by the Government of Kenya and the World Bank to address policy and market challenges that undermine the financial stability and competitiveness of the SACCO industry.

According to the SASRA boss, regulatory framework cannot be built around a punitive approach. These three tools he says, will provide options for SACCOs that are facing regulatory challenges. SACCOs facing temporary illiquidity can get support through the Central Liquidity Facility.

From the regulatory policy perspective, there is a lot of work to complete the regulatory framework such that we’ll have prudential regulation, a central liquidity fund that can address temporary illiquidity, a DGF resolution mechanism to ensure a win-win situation for depositors.

“In the next three years, the SACCOs we regulate will be at about Sh1 trillion in assets. The more the industry grows, the more risks it attracts. If anything were to happen, the impact will be huge. These are some of the things that I am hoping we can implement during my tenure as the CEO,” he added.

As a regulator, SASRA is working with other regulatory bodies, the Ministry of Cooperatives, Treasury and Central Bank for policy guidance. Over and above, SASRA collaborates with and is a member of the International Credit Union Regulators Network (ICURN). The body has helped SASRA in capacity building, benchmarking and discussing global issues around Saccos.

“In my view, the industry has grown tremendously. From a regulatory perspective, growth comes with risks. As the industry grows, we must formulate structures to effectively deal with such risks. An industry is called an industry because there are certain standards that are acceptable.

The fundamental question however is:- are we ready for the rapid changes in the financial sector and customer preferences going into the future?” he remarks.