THE SACCO SOCIETIES REGULATORY AUTHORITY SASRA Developing a

THE SACCO SOCIETIES REGULATORY AUTHORITY (SASRA) Developing a SACCO Supervisory Regime from the Ground Up Africa Sacco Regulators’ Round table, Malawi 1 st December, 2010 By Carilus Ademba CEO, SASRA, Kenya

Presentation structure 1. Where SACCO Supervision? 2. Policy Incentive to Prudential Regulation of SACCOs? 3. The Journey towards Prudential Regulation SASRA SECURING SACCO FUNDS

Cooperative Society Act • Saccos have operated under Cooperative Societies Act, (CSA) of the Laws of Kenya – A general legislation for all Cooperative Societies – CSA first enacted in 1966, amended in 1997 to give Management Committees of Sacco societies greater autonomy in running of Societies; – Further amendments in 2004 to respond to growing challenges with SACCOs SASRA 3 SECURING SACCO FUNDS

Cooperative Society Act • Being non prudential, the Act and the Rules thereunder stipulated such requirements as: – – Registration requirements; Annual audits and returns thereof; Conduct of elections; Approval of borrowing powers etc • Several amendments made to address uniqueness of Sacco societies SASRA 4 SECURING SACCO FUNDS

Need for Prudential Regulation • Need was recognized in CSA 2004, Section 91 A that • “ The Minister shall in consultation with the apex society constitute by notice in the Gazette a body to regulate the operations of savings and credit co-operative societies. ” and • “The composition of the body constituted under subsection (1), its powers, duties and the terms of office of its members shall be as may be prescribed in the rules. ” SASRA SECURING SACCO FUNDS 5

A people without a Vision Perish Kenya Vision 2030: A globally competitive and prosperous nation with a high quality of life by 2030 SASRA SECURING SACCO FUNDS

A people without a Vision Perish Kenya Vision 2030: A globally competitive and prosperous nation with a high quality of life by 2030 SASRA SECURING SACCO FUNDS

Kenya Vision 2030 • Gave new impetus to prudential regulation of Sacco societies given their significance in savings mobilization • Government aims to increase Gross National Savings to 32 of GDP SASRA SECURING SACCO FUNDS 8

Kenya Vision 2030 Vision for Financial Services Sector: “To create a vibrant and globally competitive financial services sector that will create jobs and also promote high levels of savings to finance Kenya’s overall investment needs. ” SASRA SECURING SACCO FUNDS 9

Vision 2030: Financial Sector dvpt Strategy Based on three pillars: § Provide wider access to affordable financial services, including rural areas, thereby creating employment. § Enhance efficiency in the delivery of financial services to reduce cost of delivery. § Strengthen the stability of the financial system to reduce risk of financial crisis. SASRA 10 SECURING SACCO FUNDS

Vision 2030 - Financial Sector Reforms • Vision 2030 - envisages the strengthening of alternative (described as “Formal others” in policy documents) financial service providers e. g. MFIs and SACCOs with specific strategies • Specific sub-sector strategies and programmes identified in the Sector plans • Key Sacco subsector reform programme identified as prudential regulation of Saccos SASRA 11 SECURING SACCO FUNDS

Vision 2030 - Financial Sector Reforms SACCO subsector specific programmes: • Enactment of a Sacco specific law • Setting up a regulator for SACCOs through SACCO specific legislation; • Establish and Operationalize Sacco Societies Act, 2008 SASRA 12 SECURING SACCO FUNDS

Vision 2030 - Financial Sector Reforms • Top level policy objectives in Sacco subsector being to: ü Improve governance; ü Protect member savings ü Drive efficiency gains in the sector and reduce incidences of NPLs ü Increase savings and credit in SACCOs – through increased membership SASRA 13 SECURING SACCO FUNDS

The Journey towards Prudential Regulations of SACCOs in Kenya SASRA The SACCO SOCIETIES REGULATORY AUTHORITY SECURING SACCO FUNDS

Journey towards prudential regulation 1. Laying the foundation 2. Developing the Sacco Societies Bill 3. Enactment of the Bill in to Law 4. Challenges in developing the law 5. Operationalization of the Sacco Societies Act, 2008 6. Reflections on the Regulations development SASRA SECURING SACCO FUNDS

Journey towards SACCO Regulations Laying the foundation • • • 2004: A Task Force comprising Ministry of Cooperatives, Sacco subsector representatives and other stakeholders is appointed Views are collected culminating in a Stakeholders workshop in 2005 First Sacco Societies Bill is drafted in 2006 but does get to National Assembly SASRA SECURING SACCO FUNDS 16

Journey towards SACCO Regulations Developing the Sacco Societies Bill 2007, 2 nd and more inclusive task force appointed: • Commissioner for Cooperative Development (CCD) • Central Bank of Kenya (CBK) • State Law Office (Attorney General Office) • Kenya Union of Savings and Credit Cooperatives(KUSCCO) • Kenya Rural Sacco Societies Union (KERUSSU)17 SASRA SECURING SACCO FUNDS

Journey towards SACCO Regulations Developing the Sacco Societies Bill Mandate of the 2 nd Task Force • Building on the work by the 1 st Task Force – Draft a new Sacco Societies Bill for introduction to the National Assembly • The draft bill was ready by early 2008 SASRA SECURING SACCO FUNDS 18

Journey towards SACCO Regulations Developing the Sacco Societies Bill 2008 redrafted Part I: Preliminary Part II: The Sacco Societies Regulatory Authority(SASRA) Part III: Licensing of Sacco Societies ……. c ontinued SASRA SECURING SACCO FUNDS 19

Journey towards SACCO Regulations Developing the Sacco Societies Bill 2008 redrafted Part IV: Governance of Sacco Societies Part V: Regulation and Supervision of Sacco Societies Part VI: Deposit Guarantee Fund Part VII: Miscellaneous SASRA SECURING SACCO FUNDS 20

Journey towards SACCO Regulations Enactment of the Bill in to Law • Strategy is to lobby through: – Parliament’s Departmental Committee on Agriculture & Cooperatives in Parliament – Sitting members of parliament who formally served as Sacco leaders • Support of departmental committee crucial to success of a Bill SASRA SECURING SACCO FUNDS 21

Journey towards SACCO Regulations Enactment of the Bill in to Law • Bill introduced to the National Assembly in August 2008 • Debated and enacted in October 2008 • Huge support in National assembly because Sacco societies are well known in Kenya • Became law in Dec 2008, - Sacco Societies Act, 2008 SASRA SECURING SACCO FUNDS 22

Journey towards SACCO Regulations Challenges in developing the Sacco law • Resistance to change - Consensus building • Initial focus was on Front Office Service Activity (FOSAs) • Some provisions removed/amended SASRA SECURING SACCO FUNDS 23

Journey towards SACCO Regulations Operationalization of Sacco Societies Act, 2008 • Acts of parliament are operationalized through regulations and/or rules • Required: – Development of the Regulations – Establishment of the Sacco Societies Regulatory Authority – Publication of the Regulations for by the Minister for Cooperative Dvpt and Marketing SASRA SECURING SACCO FUNDS 24

Journey towards SACCO Regulations Operationalization of Sacco Societies Act, 2008 • In early 2009, the Minister appointed a Task Force (TF) • Principal deliverables of the TF: – Regulations to operationalize the Act; – Institutional design of the Regulatory Authority – Required staffing levels to kick off SASRA SECURING SACCO FUNDS 25

Journey towards SACCO Regulations Operationalization of Sacco Societies Act, 2008 • Task Force (TF) comprised key stakeholders in the Sacco subsector: – – – – Ministry of Cooperatives (Three Representatives) Central Bank of Kenya Treasury/Ministry of Finance KUSCCO KERUSSU Cooperative Bank of Kenya Chairman was Commissioner for Cooperative Development SASRA SECURING SACCO FUNDS 26

Journey towards SACCO Regulations Operationalization of Sacco Societies Act, 2008 • Task Force sought support from: – Financial Sector Deepening Trust Kenya – Financial – WOCCU – Technical SASRA SECURING SACCO FUNDS 27

Journey towards SACCO Regulations Operationalization of Sacco Societies Act, 2008 • In May/June 2009 the TF appointed two technical working committees namely: – Regulations technical working committee; – SASRA institutional design technical working committee SASRA SECURING SACCO FUNDS 28

Journey towards SACCO Regulations Operationalization of Sacco Societies Act, 2008 • • Scope of work and composition guided by documented Terms of Reference approved by the TF but: – Both committees comprises technical staff – Both committees worked with consultants for technical advise and best practices Committees reported to the TF on their progress SASRA SECURING SACCO FUNDS 29

Journey towards SACCO Regulations Institutional design and establishment of SASRA • Technical committee focused on: – – Organizational structure and establishment Staff establishment and budget Job description, competencies and training Business process – policies and systems SASRA SECURING SACCO FUNDS 30

Journey towards SACCO Regulations Developing the Sacco Societies Regulations • Regulations Technical committee: – – – Guided by the Act, developed detailed operational and prudential regulations Classified by the subject matter of law namely governance, credit, liquidity, licensing etc Took about four months to have 1 st draft SASRA SECURING SACCO FUNDS 31

Journey towards SACCO Regulations Developing the Sacco Societies Regulations The Regulations at a glance: 1. Licensing 2. Capital adequacy 3. Shares, Savings and deposits 4. Liquidity/Asset and Liability Management. ……Cont’d SASRA SECURING SACCO FUNDS 32

Journey towards SACCO Regulations Developing the Sacco Societies Regulations 5. 6. 7. 8. 9. Credit management Risk asset classification and provisioning Investments Financial Performance Reporting Governance of Sacco Societies SASRA SECURING SACCO FUNDS 33

Journey towards SACCO Regulations Developing the Sacco Societies Regulations 10. Information Preservation and Business Continuity 11. Regulation and Supervision 12. Deposit Guarantee Fund 13. Regulatory forms and reporting formats 14. Miscellaneous provisions SASRA SECURING SACCO FUNDS 34

Journey towards SACCO Regulations Stakeholder inclusion in developing Regulations • Specifically Sacco societies • Indirect involvement of Sacco societies: • • Through inclusion of union Direct involvement of Sacco societies: • • Request for written comments on final draft Stakeholder workshop SASRA SECURING SACCO FUNDS 35

…. . and the Journey ended with…. . Commencement of the Regulations SASRA SECURING SACCO FUNDS 36

Journey towards SACCO Regulations Challenges in developing the Regulations • Setting prudential ratios/standards on: • • • Capital adequacy Loans classification Loan loss provisions Liquidity Governance in Sacco societies SASRA SECURING SACCO FUNDS 37

Journey towards SACCO Regulations Challenges in developing the Regulations • Absence of credible data on financial performance of Sacco subsector; • Reporting frequency given poor ICT adoption in most Saccos • Transitional period for Saccos already deposit taking SASRA SECURING SACCO FUNDS 38

Journey towards SACCO Regulations Challenges in developing the Regulations • Influence of already existing Regulatory framework for Microfinance and Banks • Technical committee members were full time employees in their parent institutions • Time frame SASRA SECURING SACCO FUNDS 39

Many thanks SASRA SECURING SACCO FUNDS 40