The following categories of preventive controls can be adopted to guard against possibility of fraud occurring in the Sacco.

  1. The society should maintain excellent portfolio quality
  2. There is need for simplicity and transparency of systems and procedures
  3. Fraud- preventive human resource policies
  4. Client education and awareness
  5. Strict, transparent policies and procedures of write –offs and rescheduling loans
  6. Policy for custody and handling collateral
  7. Credit committee- Credit committee not only play an important role in reducing credit risk, but also are an essential element of an operational integrity and fraud prevention strategy.
  8. Cash handling policy-Basic controls recommended to mitigate the risk of misappropriation for the society include;
  • Use of standardized, pre-printed, pre-numbered loan/membership application forms.
  • The society should prepare loan agreements in quadruplicate.
  • The society should include all vital details in the loan agreements, to reduce manipulation.
  • The society also needs to restrict access to blank loan agreements.
  • The society staff should do a final pre-disbursement vetting and verification of compliance for each loan and in case of anomalies should report to management committee.
  • Additional mandatory checks should be done by the staff before disbursing.
  • The society should elaborately document the disbursement process e.g. by making sure cheque or cash collections are recorded.
  • The society should retain one copy of the disbursement receipt and give the other to the payee.
  • In disbursing funds directly to the borrower, the staff should check for evidence that the person accepting funds is the real borrower.
  • An accountant or someone else should compare payee disbursement request and loan agreement signatures.


Policy for custody and handling collateral

Currently many Saccos are vulnerable to potential irregularities or fraud in the collection, storage and return of collateral. The assigned staff/management or any person may collect collateral but not deposit it in the designated storage area, or collect the wrong type of collateral, or neglect to collect it at all. It is important that co-operative societies should mitigate the risk associated with collateral through the following steps:

  1. The co-operative societies must have policies and procedures on when to require collateral, when to assume custody of collateral versus allowing borrower to maintain custody, where to deposit and store collateral, and how to value collateral.
  2. The co-operative societies should have clear guidelines to their staffs on how to verify the authenticity of the particular collateral e.g. land title verification, vehicles logbooks, etc.
  3. If the borrower maintains collateral, the co-operative societies should periodically inspect the collateral for impairment. The loan agreement should include a detailed description of the collateral and serial number or other identifying number of the property, and require that collateral must not be sold without prior notice to the society.
  4. Procedures must be clearly stated for returning collateral to the borrower upon full repayment of the loan. The Saccos should maintain a proper register for all members’ collateral so that whenever it is being moved or transferred to any other party, it is properly signed for.
  5. Procedures should be recommended to improve the chances that liquidation of collateral is done at the best available price, and that proceeds from liquidation are deposited intact into the bank.

2014 in review

The stats helper monkeys prepared a 2014 annual report for this blog.

Here’s an excerpt:

The concert hall at the Sydney Opera House holds 2,700 people. This blog was viewed about 44,000 times in 2014. If it were a concert at Sydney Opera House, it would take about 16 sold-out performances for that many people to see it.

Click here to see the complete report.

Letter from Standard Chartered Bank to Co-operatives and other Financial Institutions

These are words of a letter written by SCB to co-operatives and other financial institutions titled “Closure of Financial Institutions’ Accounts.”

“Standard Chartered Bank Group (“SCB”) has, as part of a comprehensive strategic review of its business and client segments in multiple countries, taken a strategic decision to discontinue banking relationships with certain client categories managed within its Commercial and Business Clients segments formerly SME Segment. One of the affected client categories is Financial Institutions (FI), within which you are classified as one.

The decision to cease banking the affected client categories in Commercial and Business Clients, including FI, has resulted from increased burden of complying with regulatory requirements for banking such clients. Key regulators under whose supervision SCB falls requires higher levels of client due diligence to be conducted on such clients, both at the time of commencing the banking relationship and on an ongoing basis. Satisfying the regulatory requirements for such clients imposes a significant cost and compliance burden on SCB.

In line with the above, we regret to inform you of our intention to close your account(s) with us effective 15th December, 2014. This notice is to enable you make alternative arrangements for your banking needs and minimize any disruption to your business.

We wish to state that this initiative has nothing to do with the standing or conduct of your operations. Upon closure, a bank draft for the balance in your account (if any) will be issued. Please pick up the draft at the branch where your account is domiciled. Cheques on the account(s) will not be honoured after the account closure. Do not hesitate to contact the undersigned for any assistance. “

We all remember when some banks locked out civil servants and teachers some years back through raising minimum account balance to 10 or 20k? Now those/that bank(s) are hawking loans in the streets and offices. Same story here. In this country people save and invest through co-operatives. By locking out these people, this bank is telling us Kenyans it does not need us. But thank God, we have banks that are still eager to serve everybody including co-operatives because they know wanjikus run this country however small their savings in co-operatives are!! Many of us will not have gone to schools/collages were it not for co-operatives which paid our school fees (school fees loans), they also provided homes we live in (development/normal loans) and paid medical bills whenever we were sick courtesy of emergency loans or even buried our dead through Benevolent Funds.

Banks should be investing in this sector instead of citing regulations and cost of complying with those regulations…it will be interesting to find out how much SCB spent on co-operatives in trying to satisfy the regulators given they posted 14% rise in 9-month pretax profit which is Kes 11.2B ($124.51 million).

Registering a Co-operative Society

There are so many people asking about co-operative registration. I have already put up information regarding co-operative registration on this blog. To summarize it all, the maximum number of people required to register a primary co-operative, is ten. Primary co-operatives are like Githunguri Dairy Farmers Co-operative Society, Stima Savings and Credit Co-operative Society Limited, Urithi Housing Co-operative Society, Safaricom Investment Co-operative Society Limited, etc. The secondary co-operatives are the co-operative unions like KUSCCO (Kenya Union of Savings and Credit Co-operatives), Meru Central Dairy Co-operative Union, etc and they require only two primary co-operatives to register them.

The ten people must qualify to be members i.e. they must have attained the age of eighteen years; their employment, occupation or profession falls within the category or description of those for which the co-operative society is formed; and they are residents within, or occupy land within, the society’s area of operation as described in the relevant by-law.

Preferably, start as a self help group and slowly build on the membership numbers and savings. This way it will be easier to convince the co-operative officer that your group is viable and can easily break even once registered. As a group, you would have interacted and known one another well before thinking of a co-operative. Its easier promoting a self-help group that has been existence for awhile to be registered as a co-operative than people who have just met. I am saying this because people expect miracles once their society is registered. If you cannot keep working on it, then expect membership withdrawals and subsequent death of the society.

There are people who have also been promised by politicians that they will be ‘helped’ once they form a co-operative. STOP. No money is free. Freebies will not take you anywhere. There is a story where a group of motorcycle operators were instructed to form a boda boda Sacco by a politician and as soon as they were given seed money, they distributed the money among themselves. Society became dormant.

A co-operative is about people not capital. Without people, there is no co-operative. The requirement of ten people aught to be amended if I was asked. The Co-operative Societies Act clearly states that if the membership of a co-operative society falls below ten, then its registration is cancelled.  A co-operative management committee has a minimum number of five and a maximum of nine members. A supervisory committee of a co-operative has three members. No executive officer of a co-operative society should be in the credit sub-committee. So, if you do the math, a ten member co-operative society will have difficulties in fulfilling the requirements of the Act.

Ushirika Day 2014 Ruiru


Societies displaying the banners during this year’s Ushirika Day Celebrations in Ruiru

Types of Co-operatives in Kenya

a) Savings and Credit Co-operative Societies

These are formed to provide financial support to members. They accept deposits to members and grant them loans at reasonable interest rates in times of need.

The objects of a Sacco are:

  1. To promote thrift among its members by affording them an opportunity for accumulating their savings and deposits and create thereby a source of funds from which loans can be given to them exclusively for provident and productive purposes, at fair and reasonable rates of interest; thereby enabling them to use and control their money for their mutual benefit.
  2. To ensure personal growth through the introduction of new products and services that will promote the economic base of the members.
  3. To ensure progress of members and society through continuous education programs on proper use of credit, reduction of poverty, human dignity and co-operation.
  4. To apply the co-operative principle of co-operation among co-operatives in order to promote members’ interests. In furtherance to the objects the society shall affiliate to the relevant National Co-operative Union and the Apex society.

b) Housing co-operatives Societies

These are co-operative societies formed to provide residential houses to members. They purchase land, develop it and construct houses or flats and allot the same to members. Some societies also provide loans at low rates of interest to members to construct their own houses.

The objects of housing co-operatives are:

  • contracting for loans from non–members by issuing debentures or mortgaging its property or by any other means up to a maximum amount to be decided by the General Meeting.
  • Lend money to members for the purpose of;

(a)  Acquisition of living accommodation for themselves,

(b)  For income generating purposes on such terms and with such security as the Management Committee may from time to time determine or guarantee loans and advances to members for similar purpose.

(iii)Undertake building operations by such means either directly or indirectly as the committee may decide.

(iv) Acquire supplies of building and similar materials and machinery of all kinds including household furniture and equipment for use in building or for sale or hire to members.

  • Acquire and relinquish lands, buildings and rights over land and buildings by purchase, lease or any other means as may be necessary for the attainment of these objects.
  • Employ architect, builders, contractors, issue plans negotiate and contract for services for light and power, water drainage, roads, and generally do all such things as are necessary and customary for the acquisition of land and its development for housing purposes.
  • Enter into contracts with members for the sale or lease of land and building acquired by the society in pursuance of its objects on such terms and conditions as may from time to time be determined.
  • Ensure progress of members and society through continuous education programmes on proper use of credit, reduction of poverty, human dignity and co-operation.
  • To apply the co-operative principle of cooperation among cooperatives in order to promote members’ interests and in furtherance to the objects of the society affiliate to the relevant National Co-operative union and the Apex society.

c) Consumer Co-operatives Societies

These societies are formed to protect the interest of general consumers by making consumer goods available at reasonable price. They buy goods directly from the producers or manufactures and thereby eliminate the middlemen in the process of distribution.

d) Agriculture/Farmers Co-operative Societies

These are formed by small farmers to work jointly and thereby enjoy the benefits of large-scale farming.

e) Producer Co-operative Societies

These societies are formed to protect the interest of small producer by making available items of their need for production like raw materials, tools and equipment, machinery etc.

f) Marketing Co-operative Societies

These are formed by several producer and manufacturers who find it difficult to sell their products in their market. A good example is the Kenya Co-operative Creameries that deals with milk.

The objects of a marketing co-operative are:

  1. To arrange for co-operative marketing, processing, grading, packaging and transporting the members produce and such other operations as may be necessary for the most profitable disposal of the produce.
  2. To arrange for the purchase and resale of farm inputs and chemicals and other similar requirements of the members.
  3. To take measures to control pests and diseases.
  4. To foster education and training of members, committee members and employees.
  5. To provide co-operation and good will between members and the society
  6. To Co-operate with other co-operatives in order to promote members interests and in furtherance of the society’s objectives.
  7. To apply the co-operative principle of co-operation among co-operatives in order to promote members’ interests. And in furtherance to the objects of the society affiliate to the relevant National Co-operative Union and the Apex society.

g) Investment Co-operative Societies

The objects of an investment co-operative are:

  1. To invest members’ contributions in prudently identified ventures in order to maximize the return on their investment.
  2. To acquire, lease, or otherwise dispose of the society’s building(s) and other fixed properties as necessary.
  3. To purchase, take on lease or exchange, hire or otherwise acquire any movable or immovable property of any kind of any interest therein any right or privileges which the management committee of the society may think necessary or convenient for the purpose of or in connection with Society’s business or which may enhance the value of any other property of the society.
  4. To improve, manage, develop, and turn to account, grant rights or privileges in respect of or otherwise deal with any of the property, rights and privileges of the society.
  5. To acquire and undertake the whole of any part of the business, assets and liabilities of any person or Society carrying on or proposing to carry on any business which the society is authorized to carry on or which can be carried on in conjunction with any business of the Society or which is possessed of property suitable for the purpose of the Society.
  6. To pay out the funds of the society, all expenses which the society may lawfully pay for or in connection with the formation and registration of the society.
  7. To amalgamate, enter into partnership or into any arrangement for sharing profits, union of interests, co-operation, joint ventures, reciprocal concession, limiting competition or otherwise, with any person of society carrying on or engage in or can be carried on in conjunction with any business of the society or which is capable of being conducted so as to benefit the society, directly or indirectly.
  8. To borrow money or receive money or deposit either with or without security or secured by debentures, mortgages or other security charged on the undertaking or on all or any of the assets of the society.
  9. To subscribe for, underwriter, buy, hold, sell and deal (either on or off a stock exchange, and either as principles, agents or trustees) in every description, to advice on investment of all kinds, to advice on, assist and deal with issues, offers for sale, and generally to carry on the business of stock and share brokers.
  10. To remunerate any person or company either in cash or by allotment of shares credited as fully or partly paid up, for services rendered or to be rendered in placing or assisting to place or guaranteeing the placing of any of the shares in the Society’s capital of any debentures, debentures stock or other securities of the society or in or about the formation or promotion of the society of the conduct or development of its business and to pay out of the funds of the society all expenses and incidentals to its formation and registration.

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