Desk Africa – Co-operative Societies in Kenya


Rome, 26 February 2019 – A co-operative society is defined as a society that has as its objects the promotion of the welfare and economic interests of its members or adherence to the principles of Islamic law and has incorporated in its by-laws the seven co-operative principles. The principles are voluntary and open membership; democratic member control; economic participation by members; autonomy and independence; education, training and information; co-operation among co-operatives; and concern for community in general.[1] The Co-operative Societies Act (CSA) regulates these bodies. Co-operative societies in Kenya take two main forms: primary societies and co-operative unions. Primary societies are those whose membership is restricted to individual persons while co-operative unions are those whose membership is restricted to primary societies.[2] In order to be registered, a primary society must have a minimum of ten people who are qualified for membership while a co-operative union must have at least two registered societies as its members.[3]

Upon registration, a co-operative society becomes a body corporate and its by-laws become binding to each member. An essential element of co-operative societies is that the members can take loans from them. However, co-operative societies are restricted to giving loans to members only. Non-members can only get loans when the by-laws of the society provide for giving a loan subject to a resolution passed at the general meeting of the society to that effect.[4]

There are various types of co-operative societies that have come up over the years: marketing co-operatives, consumer co-operatives, housing co-operatives, transport co-operatives and, Savings and Credit Co-operative Societies (SACCOs).[5] When it comes to financial inclusion, SACCOs play a big role.

What are SACCOs?

The Sacco Societies Act (SSA) defines a SACCO society as a savings and credit co-operative society registered under the CSA.[6] SACCO business is defined as financial intermediation and any other activity by a SACCO society based on co-operative principles and in accordance with the SSA, or in compliance with Islamic law by way of receipt of withdrawable deposits, domestic money transfer services, loans, finance advances and credit facilities; or receipt of non-withdrawable deposits from members and which deposits are not available for withdrawal for the duration of the membership of a member in a SACCO society and may be used as collateral against borrowings providing finance and domestic money transfer services.[7] These two definitions of SACCO business give rise to the two types of SACCOs in Kenya: deposit taking (DT) SACCOs, which receive withdrawable deposits, and non-deposit taking (non-DT) SACCOs, which receive non-withdrawable deposits. Both the CSA and SSA regulate SACCOs in Kenya. The CSA deals with the registration, incorporation and general supervision of all co-operative societies, which includes SACCOs.[8] The SSA applies to every deposit taking business and, specified non-deposit taking businesses for which the Minister may make regulations.[9] However, the regulations to specify the non-DT SACCOs have not been formulated, leaving the SSA only applicable to DT SACCOs.

Regulation of SACCOs

The SSA establishes the Sacco Societies Regulatory Authority (SASRA) whose functions include licensing of SACCOs to carry out deposit-taking business in accordance with the SSA and, regulation and supervision of SACCOs.[10] SASRA carries out its regulatory and supervisory mandate through: prescribing prudential standards to be adhered to by SACCOs; undertaking inspections or require a SACCO to submit information and reports on its financial affairs of the deposit-taking business to enable the Authority to evaluate the society’s financial condition; and requiring or overseeing SACCOs’ workout plan to avert or alleviate financial difficulties.[11]

How do SACCOs work?

The SSA provides that no person should carry out deposit taking business, as defined in the Act, unless the person is registered as a co-operative society under the CSA and holds a valid license under the SSA.[12] SACCOs are required to comply with the minimum capital requirements issued by SASRA.[13] A SACCO is required to maintain a core capital of not less than Kshs. 10,000,000; core capital of not less than 10% of total assets; institutional capital of not less than eight percent of total assets; and core capital of not less than eight percent of total deposits.[14] Failure to comply with these requirements can lead to a SACCO’s suspension of lending and investment; prohibition from acquiring, through purchase or lease, of any additional land and buildings; and prohibition from accepting further deposits or other lines of credit.[15] SACCOs are also required to maintain minimum holding of liquid assets of its members’ deposits and borrowings as prescribed by SASRA.[16] Currently, they are required to maintain fifteen percent of its savings deposits and short-term liabilities in liquid assets.[17]

SACCOs can only engage in business that SASRA has prescribed. To that effect, there is a non-exhaustive list of forms of prohibited business, which includes foreign trade operations; trust operations; investing in enterprise capital beyond the prescribed limit; purchasing or otherwise acquiring any land except as may be reasonably necessary for the purpose of expanding the SACCO business beyond the prescribed limits; and transacting SACCO business with non-members.[18]

SACCOs are required disclose to their members and potential members, the terms and conditions for operating each account and legal obligations connected to the account. Through an advertisement, a SACCO ought to state the following information to the extent applicable, clearly and conspicuously: the minimum amount required to open an account and the minimum balance to maintain it; the minimum interest bearing balance; the interest rate and fees applicable; the penalty for early withdrawal, if any; and the maturity of a term account.[19]

All members of SACCOs may apply to the SACCO for a loan or credit facility in writing, furnishing proof of their ability to repay the loan or credit facility.[20] However, a member should not be granted a loan or credit facility when it exceeds the core capital limit prescribed by SASRA (Kshs. 10,000,000).[21] SACCOs can make loans to their employees and members of the board of directors provided that the conditions of the loan comply with all requirements of the SSA with respect to loans to other members and shall not be made on terms more favourable than those extended to other members.[22]

SACCOs are required to have a written credit policy that contains the following information: loaning procedures and their documentation; requirements for grant of a loan; permissible loan purposes and acceptable types of collateral; loan concentration limits; loan types, interest rates, frequency of payments and conditions; maximum loan size per product; where collateral is used as security for lending, maximum loan amounts as a percentage of the values of the same; appraisal of the borrower’s ability to repay the loan; terms and conditions for insider lending; maximum loan approval levels for each officer and committees; and guaranteeing requirements.[23]

SACCOs can also invest their funds in securities, obligations or other debt instruments issued or guaranteed by the government or any agency of the government; deposits, obligations or other accounts of deposit-taking institutions under the Banking Act; and  shares, stocks, deposits in, loans to or other obligations of any SACCO society or co-operative society.[24]

SACCOs and Financial Inclusion

Commercial banking institutions still largely control the deposit taking financial sector. However, DT-SACCOs continue to play a key role especially in their niche market of providing saving opportunities and credit facilities to household economies.[25] As of 2017, there were 174 registered DT-SACCOs with 3.6 million registered members.[26] In order to compete with banks by creating ease of access to financial services, SACCOs have had to incorporate the use of technology in offering their services. They have embraced the usage of ATMs in partnership with third party providers, especially commercial banks. As of December 2017, 114 of the 174 SACCOs were using or connected to ATM facilities in the provision of some of their services.[27] Additionally, to ensure that they can reach more people, SACCOs have also embraced the use of mobile technologies to provide deposit and withdrawal services as well as limited digital credit services, with over 120 SACCOs connected to mobile applications.[28]


SACCOs are an important part of Kenya’s financial system. Their regulation is key to ensure that the SACCO sector continues to grow and ensure that alternative financial services are easily accessible to Kenyans. With the increased use and growth of technology in the financial sector, it will be interesting to see how SACCOs adapt to future changes in order to keep offering their services.

[1] Co-operative Societies Act (No. 12 of 1997), s 4.

[2] Co-operative Societies Act (No. 12 of 1997), s 2.

[3] Co-operative Societies Act (No. 12 of 1997), s 5.

[4] Co-operative Societies Act (No. 12 of 1997), s 43.

[5] Sacco Societies Regulatory Authority (SASRA), The SACCO Supervision Annual Report, 20, 2017.

[6] Sacco Societies Act (No. 14 of 2008), s 2.

[7] Sacco Societies Act (No. 14 of 2008), s 2.

[8] Sacco Societies Regulatory Authority (SASRA), The SACCO Supervision Annual Report, 22, 2017.

[9] Sacco Societies Regulatory Authority (SASRA), The SACCO Supervision Annual Report, 23, 2017.

[10] Sacco Societies Act (No. 14 of 2008), s 5.

[11] Sacco Societies Act (No. 14 of 2008), s 48.

[12] Sacco Societies Act (No. 14 of 2008), s 23.

[13] Sacco Societies Act (No. 14 of 2008), s 29.

[14] Sacco Societies (Deposit-taking Sacco Business) Regulations 2010, r 9.

[15] Sacco Societies (Deposit-taking Sacco Business) Regulations 2010, r 12.

[16] Sacco Societies Act (No. 14 of 2008), s 30.

[17] Sacco Societies (Deposit-taking Sacco Business) Regulations 2010, r 13.

[18] Sacco Societies (Deposit-taking Sacco Business) Regulations 2010, r 15.

[19] Sacco Societies (Deposit-taking Sacco Business) Regulations 2010, r 26.

[20] Sacco Societies Act (No. 14 of 2008), s 33.

[21] Sacco Societies Act (No. 14 of 2008), s 34.

[22] Sacco Societies Act (No. 14 of 2008), s 35.

[23] Sacco Societies (Deposit-taking Sacco Business) Regulations 2010, r 28.

[24] Sacco Societies Act (No. 14 of 2008), s 38.

[25] Sacco Societies Regulatory Authority (SASRA), The SACCO Supervision Annual Report, 26, 2017.

[26] Sacco Societies Regulatory Authority (SASRA), The SACCO Supervision Annual Report, 33, 2017.

[27] Sacco Societies Regulatory Authority (SASRA), The SACCO Supervision Annual Report, 67, 2017.

[28] Sacco Societies Regulatory Authority (SASRA), The SACCO Supervision Annual Report, 68, 2017.

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