Frequently Asked Questions On

1. Licensing

2. Capital Adequacy

3. Liquidity and Asset Liability Management

4. Credit Management

5. Investments

6. Financial Performance and Reporting

7. Governance

LICENSING

Q1: When is the commencement date of the Sacco Societies Act 2008?

The SACCO Societies Act (The Act) commenced on 26th September 2009 as per legal notice number L.N 153/2009 Gazette Supplement No. 67of 2009

Q2: When is the commencement date for the Sacco Societies (Deposit Taking Sacco Business), Regulations, 2010? According to regulation 84,

The regulations commenced on the publication date which is 18th June 2010

Q3: What is a deposit taking Sacco Society?

Any Sacco Society operating Front Office Services Activities ( FOSAs).

Q4: When does a Sacco Society apply for licensing?

The license application is effective from the date of publication (18th June 2010). Sacco Societies already operating FOSAs have twelve month window period from the date of publication. In this regard, eligible Saccos are encouraged to start making application as soon as possible to avoid last minute rush.

Q5: When is the license due for renewal?

A licensed Sacco Society will be required to apply for renewal of a license at least ninety (90) days before the expiry of its operating license in respect of its head office and any other place of business. The expiry date for all licenses will be 31st December.

Q6: Can a Sacco Society without a FOSA apply for a license?

Not now. The current regulations apply only to Saccos operating FOSAs or a Sacco intending to start operating a FOSA. However, Section 3 (2) of the Act empowers the Minister to make regulations for Saccos without FOSAs

Q7: What happens if a Sacco Society already operating a FOSA does not apply for a license?

No Sacco Society shall operate a FOSA without a license from the Authority after the expiry of the twelve month window.

Q8: What happens to a Sacco Society that applies and does not meet licensing requirements?

Upon application for a license, Saccos shall be advised accordingly on a case by case basis.

Q9: In the fit and proper test, what is the academic qualification for one to be in the board?

Minimum of form four certificate or equivalent for board members and relevant experience to direct the affairs of the Sacco Society.

CAPITAL ADEQUACY

Q1: What form of evidence is required as a proof that a Sacco Society has met capital adequacy requirement?

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 2009. 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.

Q2: What constitute the core capital and what is institutional capital?

Core Capital is Fully paid up members’ share capital + statutory reserves + retained earnings + disclosed reserves + grants/donations and Institutional capital is the core capital less the members’ share capital.

LIQUIDITY AND ASSET LIABILITY MANAGEMENT

Q1:Regulation 15 prohibits Sacco societies from engaging in foreign trade operations. What will happen to Saccos that receive foreign currencies on behalf of members?

Saccos should not engage in activities that expose them to exchange rate risks such as day to day exchange of foreign currencies for profit/gain,import and export activities, however, there is no harm in engaging in international money transfer for onward remittance to a member.

Q2: Regulations 15(1e) prohibit Sacco Societies from transacting business with non members. How shall Saccos already dealing with non members handle this?

Sacco Societies are member-owned financial institutions and are therefore created to serve the financial needs of the members. This legal nature accords them the fiscal benefits under the Income Tax Act (section 19A). Sacco Societies should therefore deal with members only and conditions for membership should be clearly defined in the Bylaws.

CREDIT MANAGEMENT

Q1: What happens to a loan which has exceeded the principal after publication of The Sacco Societies (Deposit Taking Sacco Business) Regulations, 2010?

The Sacco shall with immediate effect stop accruing interest on such loans and classify such a loan appropriately.

INVESTMENTS

Q1: Sacco Societies are required to have no more than 5% of total assets in land and buildings. What will happen to those where land and building exceed this limit?

Regulation 84 provides 4 years for a licensed Sacco Society to divest from noncore businesses and ensure full compliance with the prudential standards.

FINANCIAL PERFORMANCE REPORTING

Q1: In the Audit Committee one of the members is supposed to have financial/accounting background, what measures is going to be put in place to ensure that during vetting of the board one of them has such qualification?

The Sacco Society has the primary responsibility of ensuring through its Bylaws and Board Charter that the persons presented to the members for election have diverse skills and experiences so as to enable full compliance with the Act and Regulations.

Q2:The Regulations require Sacco Societies to establish an internal audit function. Can small Saccos outsource internal internal audit services.

The internal audit function will provide critical technical support to the Board of Directors in their policy formulation and oversight role through the audit committee. It cannot be outsourced as this will be akin to external audit whose mandate is totally different from internal audit. The benefits of having an internal auditor far outweigh the perceived costs in terms of developing and enforcing internal controls.

Q3: When are the Sacco Societies required to employ an Internal Auditor stipulated by the Regulations?

The Internal Auditor should be in place while applying for a license or during the inspection before issuance of a license.

Q4: Licensed Sacco Societies are required to make very many periodic returns to SASRA. What will SASRA do with all this information and data?

The information and data is necessary in monitoring how well the Sacco is complying with the prudential standards as provided in the Regulations and give an early warning signal in the event the Sacco is having operational or financial difficulties.

Q5: Licensed Sacco Societies are required to comply with International Accounting Standards and International Financial Reporting Standards. What are these standards and how do we use them?

These are a set of rules and regulations governing the classification and recording of financial transactions in a Sacco. The officers mandated with the responsibility of recording transaction and preparing the accounts are assumed to be conversant with the accounting standards relevant to the Sacco operations or can seek guidance from professional bodies and coleagues.

GOVERNANCE

Q1: Will Sacco Societies be required to change the Name of Central Management Committee (CMC) and General Managers to Board of Directors and Chief Executive Officers respectively as the regulations refer to these new terms?

All Saccos with FOSAs are required to change the names of the CMC and General Managers to Board of Directors and CEO respectively to conform with the requirements of the law.

Q2: Is there a set salary for the CEO since they are expensive than our current managers?

The appointment of the CEO and determination of his/her Salary is the responsibility of the board of directors.

Q3: Will the Supervisory Committee still exist or is it abolished with the introduction of the Audit committee?

The two shall complement each other as the Supervisory committee is appointed by the members and answerable to the AGM while the Audit committee is constituted by the Board of Directors and therefore answerable to the Board. However, the Authority will closely monitor the effectiveness of the two committees in enhancing good governance practices and provide direction as required.

Q4: When is a Sacco Society required to have the Audit Committee in place?

Regulation 57 (1) provides that there shall be audit committee duly constituted by the Board of Directors to review financial conditions of a Sacco its internal control systems, performance and findings of the internal auditor and recommend remedial actions at least once in every 3 months. Thus, the committee should be constituted by the time a Sacco is licensed.