Cooperatives and Micro, Small and Medium-sized enterprises Cabinet Secretary Wycliffe Oparanya faces the task of injecting confidence into millions of members of Savings and Credit Cooperative Organisations (Saccos) in the wake of mismanagement and loss of funds in various cooperatives.
He is now handling the Kenya Union of Savings and Credit Co-operatives Limited (Kuscco) heist which saw at least Sh13.3 billion looted, leaving the entity insolvent to the tune of Sh12.5 billion.
Mr Oparanya spoke to the Business Daily about the Kuscco heist, what it means for saccos, how to curb such incidents and why the sector is yet to get a deposit insurance cover.
Kuscco had approximately 3,500 affiliated saccos spread across the country, translating to a membership of over 10 million.
At its peak, Kuscco had a share capital of Sh3.3 billion, Sh15.3 billion in deposits and savings, both amounting to Sh18.6 billion and loans to members of Sh14 billion.
Unfortunately, the management diverted from its core mandate of advocacy and training into financial and investment services without proper structures, regulatory oversight and investment policy frameworks.
In 2024, various stakeholders raised concerns with the Ministry in respect to Kuscco’s financial irregularities, operational inefficiencies, and failure to adhere to regulatory requirements, among other issues.
Consequently, this office intervened and undertook a routine inspection, which confirmed the mismanagement and irregularities in Kuscco.
Thereafter members appointed an interim board, which engaged PricewaterhouseCoopers (PwC) to carry out a forensic audit that revealed the extend of the rot.
What are the next steps given the findings from the PwC forensic audit?
I have handed over the report to the National Police Service Inspector-General Douglas Kanja in the spirit of whole-of-government approach and to ensure the relevant stakeholders recover their money.
I request the agencies involved to take the necessary legal and administrative action, conduct further investigations to support litigation pertaining to criminal and economic crimes culpability and commence the process of asset recovery.
In light of what happened as detailed in the PwC forensic audit, what is the status of Kuscco? Does it continue engaging in deposit-taking and lending?
Kuscco is still operational but at the moment it is not engaging in deposit-taking and lending business. It is going through a reorganisation.
It is a very important institution for saccos. Unfortunately, before the Cooperatives Bill 2024, apex institutions like Kuscco were not properly organised. But this Bill provides for a proper organisation of such entities.
We feel that Kuscco will still play a very important role in terms of advocacy and capacity building for saccos in the country. After restructuring it will be a lean institution that can undertake that mandate appropriately.
Initially, the push has been to regulate Kuscco’s activities that are outside advocacy and training. Does your response mean that the way forward is to shut those businesses instead of trying to regulate them?
Kuscco is being restructured to be a lean institution that will only do two things: advocacy and training. The rest of the functions that it was doing have been removed from it.
We want it to be a very lean institution. Before, it was employing over 200 staff, but we think it should not be employing more than 40.
Given the findings in the PwC audit, especially around misstatements of financial statements, are you considering recommending to saccos to make provisions for losses or even write off this money? What are the chances of recovering this money?
We have already met members of Kuscco and pointed out that they are unlikely to recover this money. And even if a recovery process is undertaken, it will take too long. So, we told them that, in terms of accounting prudency, they should make appropriate provision in their accounts.
Because some of the saccos are owed billions of shillings, instead of making a provision in one year, we advised them to spread it over a period of time. Otherwise, it will cause insolvency in some of those saccos.
In addition, we have talked to various banks to support this process so that affected saccos do not go under.
Kuscco was running something closer to the central liquidity fund that has been in the works for years. What is the update regarding this fund?
The liquidity fund is not yet operational. We have come up with a Cabinet memo and it is before the Cabinet now for consideration so that we formally introduce it. The Kuscco liquidity fund lacked proper legislation and that is what we want to fix.
Kuscco is not the only case of mismanagement and theft in the sacco movement. What is the ministry doing to secure members’ money?
It is true there has been quite a number of governance issues within saccos for some time. That is why the government decided to come up with the Co-operatives Bill, 2024.
I am happy to report that this Bill has gone through the National Assembly, and it is now before the Senate. We are optimistic that soon it will get the senators approval and thereafter enacted into law, improving the governance of cooperatives.
There are other cases involving major saccos that are in financial problems because of suspected mismanagement. We are going to take those cases before investigating agencies.
The Sacco Societies Regulatory Authority (Sasra) has for years been pushing to introduce a deposit guarantee fund to protect depositors from total exposure. What has been the missing link at the ministry?
The way the credit guarantee fund was structured made it very difficult to implement. We have proposed an amendment to the Sacco Societies Act which is before the Cabinet. As soon as that amendment goes through, that credit guarantee fund will be implemented.
