Ethiopian SACCO Supervision & Regulation CURRENT STATUS & DEVELOPMENTAL CONSIDERATIONS FEDERAL CO-OPERATIVE AGENCY OF ETHIOPIA ILCU Foundation - July 2014

What do we mean by Supervision and Regulation? In the context of this session we mean the oversight of the safeness and soundness of SACCOs by an independent body, state authority or institution/s authorised by government to oversee the quality and performance of SACCOs in the interest of the ongoing sustainability of these financial institutions and for the benefit of their members. ILCU Foundation - July 2014

Essential Requirements for Effective SACCO Regulatory Body The first requirement is the existence of a suitable legislative framework including a firm legislative base for the regulatory institution. This should include the authority to draw up appropriate prudential regulations along with the power to impose a range of sanctions for non-compliance. ILCU Foundation - July 2014

Sufficient budget to carry out SACCO duties. The staffing of the institution with competent people who possess the necessary range of skills to manage and operate a financial regulatory institution. Ideally they should be trained or well versed in the SACCO principles and have an understanding of the unique needs of the sector from the prudential aspect. Sufficient budget to carry out SACCO duties. Appropriate technology to manage a modern supervisory body. ILCU Foundation - July 2014

Where are we now? At present the supervisory system is in the early stages of development and operation. Ensures co-operatives adhere to the Proclamation provisions and law. 300+ Staff: committed to all co-operatives, not just SACCOs. Independent audits of SACCOs not carried out on annual basis. 50% audited each year (based on percentage of co-operatives audited per year). Specialised financial nature of SACCO has been overlooked to a degree. ILCU Foundation - July 2014

Major Forms of National SACCO Financial Oversight in use Worldwide State run regulation for all SACCOs (usually by the country’s central bank). Supervision by dedicated unit of state co-operative agency. State regulation of largest SACCO on risk based criteria. Staged levels of oversight; ranging from light to full SACCO regulation, depending on size and maturity. Regulation delegated by state to third party, e.g. National League of SACCOs. ILCU Foundation - July 2014

Obstacles Impacting Introduction of Regulation Body Cost factor for both the state and/or the movement. Widespread of thousands of small entities across the country Need for advanced expertise in regulatory skills and knowledge. Need for financial and leadership abilities. Dedicated legislation including laws to facilitate the introduction and enforcement of regulatory and prudential directives. ILCU Foundation - July 2014

Obstacles Impacting Introduction of Regulation Body 6. Lack of government auditors and an auditing environment within the system to nurture and promote the function. 7. Need for a structured, modern reporting system at regional and national level in financial oversight. 8. Modern IT and standardised programmes required ILCU Foundation - July 2014

National Regulation of SACCOs worldwide   National Regulation of SACCOs worldwide The Gambia Ghana Liberia Sierra Leone Ireland Kenya Belize ILCU Foundation - July 2014

Why is Regulation Essential? To establish & maintain good practice in SACCO sector. To generate public confidence in SACCO movement. This concept is generally accepted worldwide. What form should it take in Ethiopia? How should it be implemented given the stage of development of the SACCOs and the environment in which they operate? ILCU Foundation - July 2014

Environmental Factors Impacting Progress Existence of urban as well as rural SACCOs. Large number of widespread and growing SACCOs, including a lot of small societies. Lack of suitably qualified staff to manage SACCOs and Unions. Lack of constant regular audits by available auditors. ILCU Foundation - July 2014

Environmental Factors Impacting Progress Lack of specific proclamation dealing with the many needs of modern SACCOS A good communications system. Modern IT system dedicated to SACCO reporting and control. Adequate number of skilled regulatory staff. ILCU Foundation - July 2014

Let us Consider the Steps to Initiating a Functioning Let us Consider the Steps to Initiating a Functioning Supervisory System for SACCOs in Ethiopia Should it be an all embracing system covering every SACCO? Should it be a limited system covering only large SACCOs? Should it be a twin track system covering all SACCOs, but in a graduated manner? Is there another way? ILCU Foundation - July 2014

 Illustrative Steps to a functioning Regulatory / Supervisory Regime for SACCOs Adopting Twin Tracked System Carry out a comprehensive survey of SACCOs on a regional basis Set criteria Choose standards of acceptable performance Draw Up New Cooperative Law and facilitate establishment of chosen regulatory regime ILCU Foundation - July 2014

 Illustrative Steps to a functioning Regulatory / Supervisory Regime for SACCOs Adopting Twin Tracked System 5. Structures to manage the system 6. Audit and accounting considerations. 7. Draw up standard rules for SACCOs based on Law and Regulations. 8. Regional and National Structures and Procedures. 9. Suitable and up to date IT required. ILCU Foundation - July 2014

Immediate Tasks Carry out the comprehensive review and survey. Decide on appropriate parameters for a graduated regulatory system. Select the basic standards to be applied. Upgrade the role and review the structure of the auditing function at all levels. Set competency requirements for key staff before registering primary SACCOs. Review the other requirements including the member potential and occupational risk relating to the plans of each new applicant primary. ILCU Foundation - July 2014