Kenya’s co-operative movement is facing a sweeping governance reckoning, with the State warning that about 25,000 saccos risk deregistration for failing to file audited accounts and hold lawful AGMs despite repeated reminders.
The crackdown, targeting societies that collectively sit on more than Sh1.2 trillion in deposits, follows years of weak compliance. Data from the State Department for Co-operatives shows that less than 5,000 co-operatives are compliant with statutory reporting requirements.
In the year to June 2025, only about 4,000 co-operatives filed audited results, down from 4,734 two years earlier, even as member funds continued to grow.
Principal Secretary Patrick Kilemi says non-compliant societies that ignore the Co-operative Societies Act now face cancellation of registration, removal and surcharging of officials, and tighter scrutiny of their borrowing and governance structures.
Failure to submit audited accounts within four months after the end of a financial year contravenes the Co-operative Societies Act, which allows immediate deregistration for societies that fail to file returns for three consecutive years.
The law also strips management committee members of office where audits are delayed, barring them from seeking re-election for three years.
The hard line is part of a broader clean-up after high-profile scandals at Kuscco, Ekeza and Metropolitan Sacco eroded public trust and exposed gaps in oversight between Sasra and the Commissioner for Co-operatives.
Ksh13 Billion Kuscco Heist That Nearly Collapsed Saccos.
The Sacco sector in Kenya has faced a historical crisis in the aftermath of the insolvency that hit Kenya Union of Savings and Credit Co-operatives Ltd (KUSCCO) on account of massive fraud.
An audit undertaken by PricewaterhouseCoopers (PwC) detailed how top officials at the umbrella body engaged in unethical financial practices that have put many Saccos across the country at the risk of losing billions of shillings.
The financial audit exercise on KUSCCO's books uncovered major financial malpractice dating back to 2013. Notably, one red flag uncovered during the audit was that top officials at the union forged the signature of a dead man to cook the books.
As detailed in the report, the 2022 financial records bore the signature of Alfred Basweti of Omenye and Associates - who was deceased at the time the audited books were signed.
Through the forged documents, top officials portrayed the union as financially sound and making a profit to conceal financial mismanagement. The report indicated that the cooked figures amounted to Ksh9.3 billion.
This put the spotlight on three individuals, the former MD George Ototo, finance manager George Owino and the Chairman George Magutu.
A further investigation unearthed the loss of another Ksh206 million through withdrawals from the bank accounts. In this instance, some of the officials allegedly withdrew millions from the organisation's saving account under the pretext of replenishing the Front Office Service Activity (FOSA) of their branches.
In the end, they would only take a fraction of the money to the FOSA branches. The audit further revealed that top officials received loans amounting to Ksh489.2 million. Some of the loans issued to the members were contrary to the Sacco guidelines. The officials also failed to repay some of the loans given to them.
Other irregularities included overpayment of commissions amounting to Ksh821 million (with some of the money paid to the top officials) and potential irregularities of a home project estimated at Ksh1.2 billion.
For instance, for the KUSCCO Estate project in Kitengela, the audit exposed irregularities in the award of the tenders. It was detailed that some tenders were awarded to contractors via email. The Kitengela housing project involved the construction of 120 houses and shops that were to be rented out.
Additionally, there was evidence that some contractors were paid more than their original quotation in the tender documents.
Equally, the audit established that some officials received kickbacks from the contractors. This was in addition to another red flag that was raised, which was the payment of Ksh18 million to some officials who often visited the construction site. According to the audit report, the money was paid as part of allowances for site visits.
In the wake of the scandal, Regulators are tightening the rules on external auditors, forcing large saccos into delegate-based AGMs, linking new loan approvals to up-to-date audits and business plans, and pursuing CEOs who have failed to file wealth declarations.
While enforcement will likely trigger anxiety and consolidation among smaller, poorly run societies, the push signals a shift toward tougher, rules-based supervision aimed at protecting 7.4 million members from opaque management, runaway borrowing and abuse of their savings.
Recent Trends In The Sacco Landscape in Kenya
These interventions, come at a time when Kenya’s savings and credit cooperative societies have implemented their first reduction in dividend rates in three years, cutting the average rate of dividends on share capital to 10.46 percent for the year ending December 2024. This marks a strategic shift as saccos prioritize building stronger capital reserves over maximizing immediate returns to their members.
The mean rate of dividends on share capital dropped from the previous year’s 10.92 percent, representing the first reduction in member payouts since 2021. This decline comes during a period when saccos simultaneously reduced average interest rates on deposits from 7.45 percent to 7.14 percent. However, despite these reductions, saccos continue to maintain a significant competitive advantage over traditional banking institutions, with banks averaging only 4.14 percent returns on deposits during the same period.
The cooperative movement in Kenya has long been celebrated for offering superior returns to members compared to conventional banking channels. Even with the recent adjustments, saccos remain approximately 6.32 percent ahead of commercial banks in terms of dividends and three percent higher in interest rates on member deposits. This sustained advantage underscores the continued relevance and attractiveness of the sacco model for Kenyan savers and investors.
Sasra has identified increased regulatory pressure as the primary driver behind the shift toward lower dividend and interest rates. The regulatory framework governing deposit-taking saccos has evolved to emphasize institutional stability and capital adequacy, requiring these organizations to retain more of their surpluses rather than distributing maximum possible returns to members.
This regulatory emphasis reflects lessons learned from financial sector challenges and the need to ensure that saccos maintain sufficient capital buffers to weather economic uncertainties. The approach mirrors international best practices in financial regulation, where capital adequacy requirements have been strengthened across various financial institutions following global financial crises.
While the percentage rates decreased, an important distinction must be made regarding absolute payout figures. The total amount distributed to members actually increased substantially, growing by 8.5 percent to reach Sh59.74 billion in 2024, up from Sh55.06 billion in 2023. This apparent contradiction between declining rates and increasing absolute payouts reflects the overall growth and expansion of the sacco sector during this period.
The increase in total distributions indicates that the sacco industry continues to expand its membership base and asset portfolio, even as individual percentage returns moderate. This growth trajectory demonstrates the resilience and continued appeal of cooperative financial institutions in Kenya’s financial landscape, despite the challenges that have necessitated more conservative payout policies.
Saccos in Kenya have historically played a crucial role in financial inclusion, particularly among middle-income earners, civil servants, and professionals who form common bond groups. Unlike commercial banks, saccos operate on cooperative principles where members are simultaneously owners and customers, creating a unique stakeholder relationship that has traditionally translated into higher returns and more member-focused services.
The sector’s importance to Kenya’s economy cannot be overstated. Saccos mobilize substantial domestic savings, provide affordable credit facilities, and support wealth creation among their membership. They have been particularly instrumental in facilitating home ownership, education financing, and business development for middle-class Kenyans who might face challenges accessing similar services from conventional banks.
