PRESENTATION BY JOSEPH TARACHA E- mail:

Minimum capital requirements: Sacco societies shall maintain minimum capital requirements as prescribed by SASRA or else pay a penalty interest not more than 1% of the amount of deficiency for every day with deficiency. Minimum liquid assets: Sacco societies shall maintain minimum liquid assets as prescribed by SASRA. Prohibited business: Sacco societies shall only engage in businesse prescribed by SASRA.

Place of business: A Sacco society can only open a branch or new place of business or change its location with approval of SASRA. Contravention may result in a fine not less than Kshs. 100,000 or imprisonment for a term not less than three years or both. Application for loan or credit facility: Sacco societies must put in writing: (a) Loan policy and procedure manual, (b) an asset review system including review of the entire asset portfolio.

 Limits on loans and credit facilities: SASRA shall prescribe the limit of societies’ core capital beyond which no loans or credit facilities shall be granted; loans/ credit facilities shall not be secured against the society’s core capital. Contravention may result in a fine not less than Kshs. 100,000 or imprisonment for a term not less than two years or both.

Insider lending: A sacco society may only advance loans to its employees and members of the board of directors on terms similar to other members subject to limits on proportion of total assets as determined by SASRA. Investments by Sacco societies: Sacco societies can invest their funds in: government securities, financial institutions, capital markets and in other co-operatives subject to limits on proportion of total assets as determined by SASRA. Investment in land should only be for conducting deposit taking business subject to limits on the proportion of total assets set by SASRA.

Financial year: shall be twelve months ending 31, December in each year. Form of accounts: Sacco societies shall keep proper books of accounts denominated in Kenyan shillings that show a true and fair state of affairs and comply with IFRS. The board of directors shall cause accounts of the Sacco society to be audited within three months after the close of each financial year.

 Submission of accounts to the authority: A Sacco society shall submit an audited balance sheet, profit and loss account and a copy of the auditor’s report not later than three months after end of the financial year.  Disclosure requirements: Sacco societies must disclose (a) members holding more than 20% of the share capital and deposits, (b) advances or credit facilities exceeding limits on core capital set by SASRA, (c) any insider lending.

 Appointment of internal auditor: Every Sacco society shall appoint an internal auditor who shall report to the board of directors.  Appointment of external auditor: Every Sacco society shall appoint a qualified external auditor who should not be removed from office without SASRA’s consent.

 Capital adequacy requirements ensure that each SACCO Society maintains a level of capital adequate to protect or cushion member deposits and creditors against losses resulting from business risks that the SACCO, faces. These risks include credit, investment, legislative, liquidity, interest rate and competitive risks. Thus as a measure of a financial institution’s safety and soundness, adequate capital promotes public confidence in the institution.

 Capital in a Sacco Society is composed of: core capital defined by the Sacco Societies Act, 2008 as fully paid up members’ shares, retained earnings, disclosed reserves, grants and donations all of which are NOT meant to be expended unless on liquidation of the Sacco society. Thus, Core Capital = Fully paid up members’ share capital + statutory reserves + retained earnings + disclosed reserves + grants/donations; and;

 Instituitional capital which is defined as core capital less the members’ share capital. Institutional capital refers to the portion of the core capital that belongs to the SACCO society as an institution such that no one member can individually lay claim on it.

 Minimum Capital Ratios: Unless a higher minimum ratio has been set by the Authority for an individual SACCO Society based on criteria set under regulation 10, every institution shall, at all times, maintain:(a) A core capital of not less than ten per cent of total assets;(b) A core capital of not less than eight per cent of its total deposit liabilities; and(c) An institutional capital of not less than eight per cent of its total assets.

 Minimum Core Capital The minimum core capital for a SACCO Society shall at all times be Kshs.10 million (ten million shillings). This must be met before a license is issued. A SACCO Society’s capital levels will be monitored on a continuous basis by the Authority and may be reviewed from time to time. All Sacco Societies currently carrying out deposit taking business will have four (4) years to build their capital to the regulatory standards.

 Sacco societies carrying out deposit taking business at the commencement of Sacco Societies shall at the point of applying for license be required to have: 1. A core capital of not less than 4% of total assets which shall graduate to 10% by the fourth year;2. A core capital of not less than five per cent of its total deposit liabilities which shall, gradually graduate to 8% by the fourth year; and 3. An institutional capital of not less than two per cent of its total assets which shall graduate to 8% by the fourth year.

 Sacco societies already carrying out deposit taking business will be required to complete the capital adequacy form (Form 1, SASRA2/001) as part of their license application showing the capital ratios as at 31st December A new Sacco society applying for deposit taking license from the Authority must provide evidence of the Ksh.10 million by way of a bank statement in the name of the Sacco Society.

 The board of directors of each SACCO Society shall be responsible for establishing and maintaining, at all times, an adequate level of capital. The capital standards outlined are the minimum acceptable for SACCO Societies that are fundamentally sound, well- managed, and which have no material financial or operational weaknesses.

 Upon getting a license, a Sacco society shall prepare and submit to SASRA, at the end of every month to be received by the 15th day of the following month, a return on Capital adequacy. SASRA will validate the data provided on the returns from the balance sheet and independently compute the capital ratios. Additional information may be requited from the Sacco society in evaluating compliance with the capital adequacy requirements.

 Where a Sacco Society is undercapitalized SASRA may pursue may pursue these actions against a Sacco Society, its board of directors, or its officers: a) prohibition from declaring or paying dividends; b) prohibition from expanding existing activities or engaging in new activities; c) suspension of lending, investment and credit extension operations; d) prohibition from acquiring, through purchase or lease, additional property and equipment; e) prohibition from accepting further deposits or other lines of credit; and f) prohibition from declaring or paying bonuses, salary incentives, severances packages, management fees or reimbursement of expenses to directors or officers. g) Any other action deemed appropriate by the Authority.

 According to the Sacco Act 2008 the supreme authority of a Sacco Society is vested in Membership Responsibility exercised in general meetings. Members should ensure that only credible members are elected to the board of directors. The board of directors shall consist of elected non executive directors.

 Exercise prudence and diligence of "ordinary men of business" and shall be held, jointly and severally liable for any loss occasioned by their actions which are contrary to the Act, these Regulations, rules, bylaws or the direction of any general meeting of the Sacco Society or any other applicable law.  Ensure that the management maintains proper and accurate records that reflect the true and fair position of the Sacco Society’s financial condition.

 Ensure that the Sacco Society functions effectively and that an adequate and effective internal control system is put in place; establish appropriate policies including human resource policy, credit policy, investment policy, savings policy, liquidity policy, information preservation policy, dividend policy and risk management policy.

 Meet not more than twelve times in a financial year and not more two months shall lapse between the date of one meeting and the date of the next meeting.  Ensure that the Sacco makes adequate provisions for known and probable losses likely to occur as required by Regulations; ensure that the Sacco Society maintains a positive image.

 Establish board or management committees, including an audit and a credit committee as may be necessary to effectively discharge its functions.  Be responsible to the members for the production of the Annual Audited Accounts which shall be presented at an Annual General Meeting held not later than four months after the end of a financial year; be responsible for the appointment and removal of the chief executive officer of a Sacco Society; report to the Authority, within fifteen days, the appointment, resignation and or removal of the chief executive officer.

 Attend board meetings regularly and shall automatically cease to hold office if he or she fails to attend three consecutive board meetings without permission or reasonable cause.  Not receive remuneration in form of a salary for services rendered to the Sacco Society, but may be reimbursed for necessary expenses incurred in course of discharging lawful duties to the benefit of the Sacco Society.  Not be permitted to hold the position of a director in more than one Sacco Society licensed under the Act.

 The chief executive officer shall be responsible to the board of directors for the day- to-day running of the matter of the Sacco, paying attention to: implementation and adherence to the prescribed policies, procedures and standards; systems that have been established to facilitate efficient operations and communication; the planning process developed to facilitate achievement of targets and objectives; all staff matters, particularly human resource development and training; adherence to the established code of conduct; and to the Act, these Regulations, rules, by laws and any other applicable laws.

 The chief executive officer shall ensure that the board of directors is frequently and adequately appraised of the operations of the Sacco Society through presentation of relevant Board papers which shall cover, among other areas: monthly, quarterly and annual financial statements, showing current compared with past period actual performance, the budget compared with the actual expenditure, and with explanations for any variances; capital structure and adequacy; delinquent loan list, and in particular growth in loans, loan losses, recoveries and provisioning; Statement of comprehensive income (monthly, quarterly and annual) comparison with budgeted against actual; sources and distribution on profile of savings and deposits; all insider dealings and non-performing insider loans if any; reports on violation of the Act, these Regulations and any other applicable law, and remedial actions taken to comply; large risk exposures; investment portfolio; any regulatory reports, and internal reports; and any other relevant areas to the Sacco Society’s operations.

 An officer of a Sacco Society shall comply with governance rules as prescribed by the Ethics Commission for Cooperative Societies established under Public Officer Ethics Act, A Sacco Society shall prepare a Code of Conduct in the form set out in the Third Schedule for the approval of the Authority. An officer who violates a Sacco Society’s code of conduct commits an offence and is liable on conviction, to a fine not exceeding one hundred thousand shillings or to imprisonment for a term not exceeding one year or to both.

 Capital adequacy requirements.  Minimum liquid assets.  Prohibited business.  Asset review systems.  Limitations on award of loans.  No investment in land except for purpose of deposit taking.  Improving member attendance.  Director and CEO training.

 Thank you!!!