Saccos Off the Hook as Court Stops Kuscco Loss Rule

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Kenya’s High Court has halted a Sacco Societies Regulatory Authority (Sasra) directive that sought to compel cooperatives to book IFRS 9-style provisions on losses tied to the Sh13.3 billion Kuscco fraud.

The ruling removes immediate pressure on institutions that faced reduced dividends and capital strain under the Kuscco Loss Rule.

Nyati Sacco filed the petition, arguing the directive had no legal basis because there was no formal insolvency declaration for Kuscco. Justice Mugure Thande agreed, calling the rule “unreasonable, disproportionate, and unconstitutional” due to lack of public participation and inadequate justification.

The court added that voluntary provisioning by some saccos could not “sanitize” a regulation issued without lawful procedure.

Sasra’s order required saccos to recognise expected credit losses on their Kuscco deposits and shares, with some cooperatives warned to trim member payouts or build capital buffers through bank loans.

The regulator said the approach aligned with IFRS 9 to prevent overstating assets and income, citing risks to member deposits.

Dividend payments in the sector averaged 8.22% to 10.22% between 2019 and 2023, so the rule sparked concern among institutions prioritising consistent returns to members.

The dispute traces back to a forensic audit by PricewaterhouseCoopers (PwC), which uncovered extensive financial misconduct at the Kenya Union of Savings and Credit Cooperatives.

PwC found falsified books, hidden liabilities, and unexplained withdrawals. Kuscco had Sh5.2 billion in assets against Sh17.7 billion liabilities, leaving a Sh12.5 billion deficit and Sh8.8 billion owed to member saccos.

The investigation identified understated expenses of Sh9.3 billion, Sh206 million in unexplained withdrawals from 2018 to 2023, and fictitious 3% commission entries siphoning Sh1.6 billion. Some contracts went to firms linked to Kuscco executives.

These findings were forwarded by the Ministry of Cooperatives to investigative agencies for possible prosecution in early 2025.

In response, Sasra issued its February 2025 directive, stating non-compliance breached the Sacco Societies Act and created misleading financial positions. Officials warned that ignoring expected credit losses could expose members to sudden shocks.

Several saccos had already begun provisioning before the court ruling: Stima Sacco set aside Sh108 million, Kimisitu Sh353.95 million, Mhasibu Sh408 million, and Balozi Sh437.55 million.

Others phased their provisions, with Sheria Sacco booking Sh12.6 million against Sh146.8 million exposure, while Qona Sacco planned staggered provisioning over four years for Sh134.7 million.

Nyati Sacco, with Sh86 million exposure, had set aside 10% while contesting the directive. Sector-wide provisions reached about Sh1.8 billion by March 2025.

Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.