Saccos borrow banks model to shield billions

ON a busy weekday morning in Nairobi, Mary Wanjiku scrolls through her phone, anxiously checking her Sacco balance.

A teacher for over a decade, she has relied on her cooperative society to save for her children’s education and access affordable loans.But in recent years, stories of delayed withdrawals and struggling Saccos have made her uneasy.

“I trust my Sacco, but sometimes you hear things and you start wondering what happens if something goes wrong,” she tells the Star.

Mary’s concerns echo across Kenya, where millions depend on Savings and Credit Cooperative Organisations (Saccos) not just as financial institutions, but also and most importantly as lifelines.

Now, the sector is undergoing one of its most significant transformations that could redefine how the member-owned institutions operate, protect savings and compete in a rapidly evolving financial landscape.

With more than 7.39 million members and assets exceeding Sh1.07 trillion, Kenya’s Sacco sector has long been a cornerstone of financial inclusion, supporting key sectors such as agriculture, education, transport and the civil service.

For decades, it has bridged the gap left by traditional banks, offering accessible savings and credit solutions to salaried workers, farmers, and small businesses.

Loan portfolios alone grew by 11.5 per cent to Sh845 billion in 2024, pointing to the sector’s continued expansion despite economic headwinds.

But beneath this growth lies a fragile reality. Governance failures, liquidity constraints, and rising loan defaults have exposed vulnerabilities within the system.

In some cases, members have been unable to access their savings on demand. In others, mismanagement has led to outright losses, shaking confidence in institutions once considered safe havens.

The collapse of confidence reached a tipping point following last year’s crisis involving the Kenya Union of Savings and Credit Co-operatives (KUSCCO), where billions of shillings were lost, sending shockwaves through the cooperative movement.

For savers like Mary, the question is no longer just about returns — it is about security.

In response, policymakers are pushing sweeping reforms through the proposed Sacco Societies (Amendment) Bill, 2025, legislation that seeks to bring Saccos closer to the regulatory and operational standards of commercial banks.At the heart of these reforms are two transformative ideas, a Deposit Guarantee Fund (DGF) and a Central Liquidity Facility (CLF).

The DGF would, for the first time insure Sacco deposits mirroring protections long enjoyed by bank customers. In practical terms, this means that if a Sacco collapses, members would not lose their entire savings.

“It’s about confidence, members have saved billions. They need assurance their money is safe. A deposit guarantee fund gives that comfort,” CEO Solomon Atsiaya of the National Police Sacco says.

For Mary, such a safeguard would be a game changer. “If I knew my savings were protected, I would even save more,” she says.

The Central Liquidity Facility, on the other hand, is designed to address one of the sector’s most persistent challenges: cash flow shortages.

By acting as a lender of last resort, the facility would allow Saccos facing temporary liquidity pressures to access emergency funding, preventing panic withdrawals and stabilising operations.

“Saccos have been struggling with liquidity, especially when many members want to withdraw at once. This facility gives us a safety net,” Atsiaya explains.

Together, these measures signal a decisive shift: Saccos are no longer being treated as informal financial groups, but as systemically important institutions requiring robust safeguards.

Beyond financial protections, the reforms aim to tackle governance weaknesses that have plagued the sector.

Two years ago, the country witnessed one of its biggest the Sacco heists, after about Sh13.3 billion went missing.

A forensic audit revealed that the Kenya Union of Savings and Credit Co-operatives (KUSCCO) suffered a Sh13.3 billion heist, which left the umbrella body for Kenya’s Saccos in a financial crisis, with liabilities (Sh17.7 billion) vastly exceeding assets (Sh5.2 billion). 

A proposed “fit-and-proper” test for board members and senior management would ensure that only qualified individuals oversee Sacco operations. Term limits, mandatory governance codes, and stricter reporting requirements are also on the table.

Industry observers say these changes are long overdue.

“That Bill is long overdue, and we want such kind of instruments to be done,” Atsiya tells the Star. “So basically, we are saying we need a little bit more participation, just to harness and make sure the Saccos’ interests, the members’ interests, are well captured within the Bill, and it will work for us as a society.”

Cooperative Alliance of Kenya CEO Daniel Marube agrees the sector must evolve but cautions against overreach.

“We are discussing how to transform cooperatives for the future. The spirit of the reforms is good stronger governance, better protection for members, but we must ensure cooperatives retain their independence,” he said.

Marube emphasises that Saccos are fundamentally different from banks as they are owned and controlled by members, not shareholders.

“Cooperatives exist because people come together to solve their own problems. The regulator should provide oversight, but not micromanage internal operations,” he notes.

This tension between stronger regulation and preserving autonomy is at the heart of the reform debate.

One of the most contentious proposals is the plan to extend regulation beyond deposit-accepting Saccos to include non-deposit ones.

Currently, only Saccos that take deposits fall under direct supervision, leaving a large segment of the sector relatively unregulated.

Bringing these entities under oversight could improve transparency and accountability — but doing so also raises concerns about cost and complexity. For rural communities and informal workers, these smaller Saccos often provide the only accessible financial services.

Any disruption increasing compliance costs could have unintended negative consequences for financial inclusion.

Even as regulatory reforms take shape, Saccos are facing mounting pressure from commercial banks and fintech platforms.

Mobile money services and digital lenders have transformed how Kenyans save and borrow, offering instant transactions and real-time access to funds.

For younger members especially, convenience is king. The new law is expected to accelerate digital transformation within the sector, encouraging Saccos to modernise their systems and improve services.

This shift is not just about competition — it is about survival. While the reforms promise long-term stability, they may come with short-term trade-offs.

Higher compliance costs could lead to increased fees or stricter lending conditions. Some Saccos might be forced to merge or exit the market altogether, triggering consolidation across the sector.

For members, this could mean fewer choices but potentially stronger institutions.

Another proposal stirring debate is the suggestion to rebrand Saccos as “credit unions” to align with global standards.

Supporters argue the change would enhance international recognition and integration.

Critics say, however, sweeping reforms could dilute the sector’s identity and undermine its savings-driven culture.

“By changing to credit unions we will be losing the savings aspect and discourage the savings culture and way of driving growth through Saccos,” Harambee Sacco chairman Macloud Malonza tells the Star.

As the Bill moves through Parliament, stakeholders are calling for deeper consultation to ensure reforms reflect the realities on the ground.

Marube emphasises the importance of participation. “These reforms will affect millions of members. Their voices must be heard,” he says.

Atsiaya from the police Sacco urges a market-driven approach. “Saccos understand their challenges best, the solutions must come from within the movement, supported by the government — not imposed.”

The concern is that excessive regulation could stifle innovation and weaken the cooperative spirit that has sustained the sector for decades.

At the same time, some industry players say the cost of inaction is clear. Without reform, governance failures and financial instability could erode trust further, threatening the very foundation of the Sacco movement.

The push to reform Saccos is part of a wider effort to strengthen Kenya’s financial system. As the country positions itself as a regional financial hub, ensuring the stability and integrity of all financial institutions has become a priority.

Bringing Saccos closer to banking standards — through deposit insurance, liquidity support, and stricter oversight — aligns with global trends and enhances investor confidence.

It also reinforces the sector’s role in driving economic growth. From financing small businesses to supporting agriculture and home ownership, Saccos remain deeply embedded in Kenya’s economic fabric.

For Mary and millions like her, the stakes are deeply personal. Her Sacco is not just a financial institution — it is a partner in her life journey, helping her educate her children and plan for the future.

“I just want to know my money is safe,” she says.

The Ministry of Cooperatives and MSMEs says the proposed reforms aim to deliver exactly that. If successfully implemented, they could usher in a new era for Kenya’s Sacco sector, defining it by stronger governance, enhanced resilience and renewed trust.

Success will depend on getting the balance right: protecting members without suffocating institutions, modernising operations without erasing identity and strengthening oversight without undermining autonomy.

As experts, policymakers, regulators and cooperative leaders navigate this complex terrain, they say the future of Kenya’s Sacco movement hangs in the balance.