Sacco Sues SASRA Following KUSSCO’s Financial Mismanagement

Nyati Sacco Society has filed a lawsuit against the Sacco Societies Regulatory Authority (SASRA), alleging that the regulator failed to protect its members from the massive financial mismanagement at the Kenya Union of Savings and Credit Co-operatives (KUSCCO), which resulted in a staggering Sh13.3 billion loss.

The Sacco contends that SASRA’s directives requiring individual Saccos to absorb the financial losses stemming from KUSCCO’s insolvency are unjust. They argue that this approach effectively shields KUSCCO and its executives from accountability, placing an undue burden on the member Saccos and their depositors.

The crisis at KUSCCO came to light following a forensic audit by PricewaterhouseCoopers (PwC), which uncovered extensive financial irregularities, including falsified records, unauthorized withdrawals, and conflicts of interest among top executives. The audit revealed that KUSCCO is insolvent by Sh12.5 billion, jeopardizing the Sh24.8 billion it received from 247 Saccos.

In response to the scandal, SASRA instructed affected Saccos to provision for the expected losses, allowing some to stagger these provisions over several years to mitigate immediate financial strain. This approach, however, has been criticized for not aligning with international accounting standards, specifically the International Financial Reporting Standard 9 (IFRS 9), which mandates that expected losses be recognized upfront.

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Peter Njuguna, SASRA’s Chief Executive Officer, defended the regulator’s stance, stating that enforcing immediate full provisions could trigger a run on deposits, threatening the stability of the entire Sacco sector. He emphasized the need to balance regulatory compliance with the practical realities facing these financial cooperatives.

The affected Saccos are grappling with significant potential losses. For instance, Mhasibu Sacco faces a loss exceeding Sh480 million, Kimisitu Sacco over Sh353 million, and the Law Society of Kenya Sacco at least Sh19 million, despite efforts to terminate its investments with KUSCCO.

The lawsuit raises critical questions about regulatory oversight and the mechanisms in place to protect Sacco members’ investments. The plaintiff Sacco asserts that SASRA’s actions, or lack thereof, have exacerbated the financial fallout from KUSCCO’s mismanagement, leaving individual Saccos to bear the brunt of the losses without adequate support or recourse.