Court Halts Mandatory Write-Offs for Saccos over Kuscco Fraud
The State had urged large savings and credit co-operative societies (saccos) to create provisions against their investments in Kuscco and reduce dividend payouts to safeguard liquidity. However, the High Court has blocked a directive from the Sacco Societies Regulatory Authority (Sasra) that required saccos to set aside funds covering losses from the Sh13.3 billion fraud at Kenya Union of Savings and Credit Co-operatives (Kuscco).
The guideline aimed to align with IFRS 9 accounting rules, which mandate lenders to recognize expected losses on assets immediately. Despite that, the court found that the Sasra directive was hastily issued without adequate public consultation.
Impact on Sacco Members
The ruling prevents forced write-offs and potential dividend freezes or cuts. Sacco members have benefited from consistent annual dividends ranging from 8.22% to 10.22% over the five years leading up to 2023, even through the Covid-19 economic challenges.
“There is no proportional nexus between the objective and the rationality or justification whatsoever in the guideline that was advanced that was satisfactory to the court.”
Background on Kuscco Losses and Accounting Principles
- Kuscco fraud amounted to Sh13.3 billion, affecting sacco deposits and shares.
- International IFRS 9 standards require expected losses to be recognized promptly by financial institutions.
- The Sasra guideline aimed to enforce these standards on Kenyan saccos.
- The court deemed the enforcement premature and procedurally flawed.
Conclusion
This judgment protects saccos' liquidity and dividend stability, reflecting judicial caution over regulatory decisions lacking broad stakeholder engagement.
Author's summary: The court prevented forced loss provisions on Kuscco fraud, safeguarding sacco dividends and highlighting the need for thorough public consultation before regulatory actions.