Kenya's credit unions, known as savings and credit cooperatives, or SACCOs, serve nearly 20% of the economically active population. Some large SACCOs even compete head-to-head with banks.
However, prior legislation prohibited them from offering some of the same services as banks.
"Kenya's SACCO system has grown at a tremendous rate in the past several years, but it has lacked any kind of regulatory oversight and supervision that would enable SACCOs to really evoke trust in their communities and to compete against banks and microfinance institutions," said Brian Branch, WOCCU executive vice president/chief operating officer.
In November 2008, Kenyan officials created a law specifically designed to regulate SACCOs. A committee is underway to develop regulations, design a regulatory agency, create model bylaws and develop a deposit guarantee fund, with a goal to present draft regulations to the minister of finance by December.
Branch and WOCCU's Kenya program directors Jes?s Chavez and Erick Sil? joined the 15-person Kenyan committee in mid-May for a two-day workshop to set priorities and timelines to establish SACCO regulation in the country.
"WOCCU has a lot of experience working with SACCOs in Kenya and understands the strengths, challenges and opportunities that exist in the Kenyan SACCO sector," said F.F. Odhiambo, cooperative development commissioner with Kenya's Ministry of Cooperative Development and Marketing, which is involved with the technical development of the country's financial and nonfinancial cooperatives.
"Given WOCCU's vast international experience in regulatory development, the task force invited the organization to help implement the SACCO Societies Regulatory Agency."
During the workshop, Branch outlined recommendations in structuring and developing regulations based on WOCCU's experience assisting governments and cooperative systems in 15 countries around the globe. The committee agreed to establish a task force of consultants and representatives from Kenya's Ministry of Finance, Central Bank and WOCCU to draft regulations based on the new legislation and recommendations from the workshop.
The committee also discussed the viability of establishing a deposit guarantee fund to help protect the institutions and their members' savings. Given the current state of the SACCO sector, however, the fund would be at risk of collapsing if any large SACCO failed over the next five years. Seeing the fund as a crucial component to the system's safety and soundness, the committee proposed to solicit temporary government funding to get started.
A significant portion of the workshop was dedicated to the design and operation of a regulatory agency. The new legislation granted the establishment of a SACCO Societies Regulatory Agency, which would license deposit-taking SACCOs, regulate and supervise the institutions and manage the deposit guarantee fund. Training regulators generally takes up to three years, leading the committee to recommend that regulators be based in Nairobi rather than in the field to ensure adequate training.
Of nearly 4,000 SACCOs in Kenya, just over 200 are deposit-taking institutions, and the committee expects only about half of them will be able to comply with regulatory standards required for licensing. The law states that SACCOs have 12 months from the time of their application to become licensed. The committee seeks to amend the law so that SACCOs that have improved within a specific range will remain on track to become certified institutions.
--handerson@cutimes.com
However, prior legislation prohibited them from offering some of the same services as banks.
"Kenya's SACCO system has grown at a tremendous rate in the past several years, but it has lacked any kind of regulatory oversight and supervision that would enable SACCOs to really evoke trust in their communities and to compete against banks and microfinance institutions," said Brian Branch, WOCCU executive vice president/chief operating officer.
In November 2008, Kenyan officials created a law specifically designed to regulate SACCOs. A committee is underway to develop regulations, design a regulatory agency, create model bylaws and develop a deposit guarantee fund, with a goal to present draft regulations to the minister of finance by December.
Branch and WOCCU's Kenya program directors Jes?s Chavez and Erick Sil? joined the 15-person Kenyan committee in mid-May for a two-day workshop to set priorities and timelines to establish SACCO regulation in the country.
"WOCCU has a lot of experience working with SACCOs in Kenya and understands the strengths, challenges and opportunities that exist in the Kenyan SACCO sector," said F.F. Odhiambo, cooperative development commissioner with Kenya's Ministry of Cooperative Development and Marketing, which is involved with the technical development of the country's financial and nonfinancial cooperatives.
"Given WOCCU's vast international experience in regulatory development, the task force invited the organization to help implement the SACCO Societies Regulatory Agency."
During the workshop, Branch outlined recommendations in structuring and developing regulations based on WOCCU's experience assisting governments and cooperative systems in 15 countries around the globe. The committee agreed to establish a task force of consultants and representatives from Kenya's Ministry of Finance, Central Bank and WOCCU to draft regulations based on the new legislation and recommendations from the workshop.
The committee also discussed the viability of establishing a deposit guarantee fund to help protect the institutions and their members' savings. Given the current state of the SACCO sector, however, the fund would be at risk of collapsing if any large SACCO failed over the next five years. Seeing the fund as a crucial component to the system's safety and soundness, the committee proposed to solicit temporary government funding to get started.
A significant portion of the workshop was dedicated to the design and operation of a regulatory agency. The new legislation granted the establishment of a SACCO Societies Regulatory Agency, which would license deposit-taking SACCOs, regulate and supervise the institutions and manage the deposit guarantee fund. Training regulators generally takes up to three years, leading the committee to recommend that regulators be based in Nairobi rather than in the field to ensure adequate training.
Of nearly 4,000 SACCOs in Kenya, just over 200 are deposit-taking institutions, and the committee expects only about half of them will be able to comply with regulatory standards required for licensing. The law states that SACCOs have 12 months from the time of their application to become licensed. The committee seeks to amend the law so that SACCOs that have improved within a specific range will remain on track to become certified institutions.
--handerson@cutimes.com
