58 Kenyan Saccos Risk Bank Account Freezes Over Sh1.36 Billion Loan Defaults to Kuscco
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Fifty-eight Kenyan Saccos face frozen bank accounts, asset seizures, and property auctions after defaulting on Sh1.36 billion in loans from the Kenya Union of Savings & Credit Cooperatives (Kuscco).
The defaulted loans, advanced over 23 years against only Sh368 million in deposits, have prompted the Commissioner for Cooperative Development to issue 14-day notices to the defaulters to either pay up or submit binding repayment plans.
Failure to comply will see Kuscco seize deposits, attach Sacco assets, and block dividend payouts to thousands of kuscco members.
Among the top Kuscco Loan Defaulters are Kencom Sacco, which owes Sh377.5 million; Nacico Sacco and its investment arm with Sh358 million; and Maseno University Sacco with Sh106 million.
The crackdown on defaulters forms part of Kuscco’s broader recovery efforts amid a Sh12.5 billion insolvency gap caused by a Sh13.3 billion kuscco fraud case involving senior management.
A PwC forensic audit conducted in November 2024 uncovered widespread financial manipulation within Kuscco. The audit found manipulated books, understated costs, and phantom profits designed to conceal financial distress. At least Sh206 million was siphoned through fictitious cash withdrawals.
The audit also exposed Sh9.3 billion in falsified financial records, Sh6.5 billion in concealed internal loans, and Sh1.6 billion in untraceable commissions—of which Sh0.5 billion remains completely unaccounted for.
Those implicated in the Kuscco scandal include former Managing Director George Ototo, Finance Manager George Owino, and former Chairman George Magutu.
With assets of just Sh5.2 billion against Sh17.7 billion in liabilities, Kuscco is seeking to recover funds to repay 247 Kuscco member saccos that collectively deposited nearly Sh25 billion.
The crisis at Kuscco has already destabilized the Sacco sector, triggering Sh30.8 billion in member withdrawals in 2023 due to collapsing confidence in Saccos in Kenya.
Kuscco was originally established as the apex body for 4,168 Saccos across Kenya, which collectively serve over 6.4 million Kenyans and manage Sh890 billion in assets.
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The government and Kuscco’s new nine-member board have formulated a three-year plan to recover 70 percent of the Sh8.8 billion principal owed to Saccos. The plan includes:
- Seizing the Sh368 million currently held in deposits by Kuscco Sacco in default.
- Fast-tracking asset auctions to raise immediate cash.
- Liquidating noncore Kuscco investments, including vehicles, houses, and land under Kuscco’s housing cooperative.
- Finalizing an investor deal for Kuscco Mutual Assurance by selling a 60 percent stake to inject new capital.
Kuscco Mutual Assurance, an insurance subsidiary of Kuscco, is central to the recovery plan, with efforts underway to attract investors to stabilize the business. However, the PwC audit cautions that full recovery may take years, if achievable at all, due to the scale of the losses and the complexity of tracing stolen funds.
Several Saccos have started making financial provisions for their exposure to Kuscco. Stima Sacco has provisioned Sh108 million, while Kimisitu Sacco has allocated Sh353.95 million.
However, some Saccos, such as Qona Sacco, have opted to stagger provisions across several years, contravening IFRS 9 accounting standards which require immediate recognition of expected credit losses.
The crisis has prompted reforms aimed at strengthening governance and financial stability in the Sacco sector. The government has introduced measures such as the SACCO Shared Services Framework and the SACCO Liquidity Fund, previously known as the Central Finance Fund, to improve liquidity management.
The Sacco Societies (Amendment) Bill, 2023, under parliamentary review, seeks to bolster regulatory oversight, mandate forensic audits for high-risk Saccos, and digitize Sacco records for better transparency.
Reforms to the Deposit Guarantee Fund are also underway to protect member savings from future collapses similar to the Kuscco scandal.
The Kuscco theft case has exposed deep-seated governance failures and regulatory lapses, raising concerns about the stability of kuscco saccos in Kenya and the safety of member deposits if robust reforms are not implemented promptly.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.
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