The Kuscco scandal continues to ripple through Kenya's Sacco sector, forcing institutions to absorb losses and members to brace for reduced returns.
Savings and Credit Co-operative Societies (saccos) have started setting aside funds to cushion against their bungled investments in the troubled Kenya Union of Savings & Credit Co-operatives (Kuscco), with preliminary figures showing that provisions by just nine of them have reached over Sh1.8 billion.
The latest move by the societies is in line with a government directive requiring them to cut dividends and write off or set aside funds to cover expected losses related to the multi-billion shilling fraud at Kuscco, highlighting the additional financial burden the institutions will have to bear over the next one to five or even 10 years.
Initial results from the saccos that have so far conducted their annual general meetings (AGMs) show that the provisions have so far hit Sh1.84 billion from nine Saccos including Stima (Sh108 million), Kimisitu (Sh353.95 million), LSK (Sh19 million), Mhasibu (Sh408 million), Sheria (Sh146.8 million), Balozi (Sh437.55 million), Amref(Sh90m), Qona(Sh134,7m)and Kenpipe (Sh149.18 million).
"We would like to provide an update on the fixed deposit of Sh149,180,285 we hold with the insolvent Kuscco Ltd. During the financial year (2024), Kuscco Ltd unfortunately entered into a state of insolvency. This has significantly affected the financial standing of our investment, including the fixed deposit we had placed with the institution," said Andrew Gisore, chairman of Kenpipe Sacco, in the company's latest annual report (2024).
"Given the current circumstances surrounding Kuscco's insolvency, it has been determined that the entire amount of the fixed deposit is now impaired."
Sheria Sacco chief executive officer Fred Ongoto says their investments in Kuscco include cash and cash equivalents (Sh126.8 million) and investments in shares of Sh20 million, bringing the total to Sh146.8 million, which they have decided to provide for over 10 years at 10 per cent or Sh14.68 million per annum.
"We are providing for 10 years, that is 10 per cent a year," says Mr Ongoto.
The state has ordered 247 saccos to cut dividends and write off or set aside funds to cover unexpected losses related to the multi-billion shilling fraud at Kuscco.
The directive is expected to guide saccos as they hold annual general meetings (AGMs) to approve dividends, provisions and write-offs.
Saccos have until April 30 to hold AGMs.
The State Department for Co-operatives reckons that provisions for doubtful investments will provide the true picture of the Saccos’ financial position and protect their liquidity.
It also asked members to limit dividend payouts and set aside funds to cover for possible loss of their deposits and shares at Kuscco worth billions of shillings.
A forensic audit by consultancy firm PricewaterhouseCoopers (PwC) revealed malpractices at Kuscco, including the cooking of books, large-scale theft by executives, bribery, unexplained bank withdrawals, and conflict of interest through the issuance of contracts to firms owned by top managers and masking the schemes through manipulation of financial statements to report non-existent profits.
At the end, Sh13.3 billion has been lost, the umbrella body of saccos is insolvent to the tune of Sh12.5 billion, and Sh24.8 billion it received from the 247 saccos as deposits are at risk.
“All those people who invested in Kuscco we have asked them to provide over some time. Everybody who has savings with Kuscco we have asked them to provide as a good financial practice,” says David Obonyo, the Commissioner for Co-operative Development.
“We are telling them that this profit you have made instead of giving members all of it get a portion of it and set aside as provision. It's a good way especially now when they (saccos) are declaring dividends so that they don’t declare a lot of dividends anticipating there is money from Kuscco and this provision comes from the surplus they are realizing.”
The dividend freeze or cut is a blow to Sacco members who have enjoyed annual payouts that ranged between 8.22 per cent and 10.22 per cent in the five years to 2023 including during the Covid-19 economic hardships.
The State has kept the list of the 247 saccos with cash in Kuscco top secret, fearing its disclosure could trigger a run and collapse of the cooperative societies.
Mr Obonyo reckons that the big saccos have the largest exposure in Kuscco.
Saccos owned billions of shillings and are being advised to stagger the provisions over the coming years while some have been directed to tap bank loans for the risk buffer.
Editor's note: This article has been updated in paragraph 3 to correct a typo which had stated that the total provisions for nine Saccos was Sh1.62 billion. The correct figure is Sh1.84 billion.
