Kenya’s Co-ops grow despite of the turbulence from not complying with the regulation
The cooperative sector in Kenya appears to be growing despite of the turbulence arising from failure to comply with some regulatory requirements.
According to a recent report by sector regulator, more than 100 deposit-taking savings and credit co-operative societies (Saccos) did not meet the mandatory capital ratio requirement in 2016, raising questions over their fitness in the key credit market.
It indicated that 168 Dt-saccos out of 175 were fully compliant with the core capital requirement of a minimum Sh10 million; 144 Dt-saccos out of 175 were fully compliant with the core capital to total assets requirement of 10 per cent and 169 Dt-saccos were fully compliant with core capital to total deposits requirement of eight per cent.
In its conclusion it showed that the Dt-saccos sector is financially stable and sound as required by law. The last ratio of institutional capital to total assets is the one that was not met by a majority of the Dt-saccos.
The regulators definition of core capital includes institutional capital and as indicated above, less than 10 Saccos were non-compliant with core capital to assets ratio. It is inaccurate to measure financial soundness of Saccos based on institutional capital alone.
Technically, the only avenue available for Saccos to build institutional capital is to retain surpluses. This explains the slow level of compliance with this ratio as loan assets are growing faster than the earnings.
The authority shall be engaging stakeholders on the continued relevance of this ratio. Dt-saccos remain stable and viable alternative source of credit financing to Kenyans; and their fitness cannot be questioned.