Kenya’s deposit insurer for the banking industry has shown willingness to support the establishment of a protection scheme for savings held in cooperative societies, a move expected to strengthen trust among millions of members in a sector that currently holds more than Sh1 trillion in deposits.
Details contained in a report prepared by a committee of experts appointed by Co-operative and MSMEs Development Cabinet Secretary Wycliffe Oparanya show that the team engaged officials from the Kenya Deposit Insurance Corporation (KDIC) during consultations on reforms in the sacco sector.
The committee was tasked with examining the legal and regulatory framework governing saccos and recommending changes to strengthen oversight and safeguard members’ savings.
During its engagement with KDIC, the experts sought to establish whether the institution could support the creation of a Deposit Guarantee Fund for saccos by hosting or incubating it within its existing framework.
“The committee of experts held meetings with the leadership of KDIC and asked directly if it was possible for saccos to incubate a sacco DGF within the Kenyan Deposit Insurance Fund,” says the report. “The CoE was advised that the current legislative framework would need to be reviewed to allow saccos access to the services of KDIC and its deposit insurance fund.
However, the leadership advised that it should be possible for KDIC to incubate a DGF for the sacco sector.”
The experts observed that relying on KDIC to help set up and run the fund would allow the sacco sector to benefit from the insurer’s experience in deposit protection while also cutting down the time and resources required to build a similar structure independently.
If the plan goes through, saccos would join banks and microfinance institutions that already enjoy formal deposit protection under the existing deposit insurance system.
The committee has recommended that Oparanya hold further consultations involving KDIC and leaders in the sacco movement to determine whether the corporation’s role should be temporary during the early stages or continue permanently.
These talks would also consider matters such as the level of start-up capital needed and the contributions that institutions would be required to make.
At the moment, KDIC covers depositors in banks against losses of up to Sh500,000 should a bank collapse. According to the committee, introducing a similar guarantee for cooperative savings would strengthen confidence among members by assuring them that funds placed in saccos are protected in the same way as bank deposits.
“A DGF needs to be operationalised as a matter of priority with the aim of matching the cover to the same as banks. This will create ideal public messaging that a shilling in the bank is safe as a shilling in a sacco,” the report states.
Under the proposed arrangement, the first phase of the protection would focus on savings held in front office service activity accounts. The committee said this would ensure the scheme closely mirrors bank deposit products while keeping operational costs manageable in its early stages.
To make the plan possible, the experts have proposed the creation of a joint technical working group that will guide the process. They also recommended amendments to the Kenya Deposit Insurance Act and the Sacco Societies Act to provide a legal basis for the proposed collaboration.