LICENSE OF SACCO BY SASRA

1. Introduction

The Sacco Societies Regulatory Authority (SASRA) is empowered to license, regulate and supervise deposit taking Sacco Societies under the Sacco Societies Act 2008 (the Act), and the Regulations issued there under. The Act requires all Sacco Societies carrying out deposit taking business to apply for licenses from SASRA (Section 23 of the Act and Regulations 4). Deposit taking Sacco societies in the context of the Act refers to the Sacco Societies operating Front Office Savings Activity (FOSA).

2. Who should apply for license?

With effect from 18th June 2010, the date of publication of the Sacco Societies (Deposit Taking Sacco Business) Regulations, 2010:

All Sacco Societies intending to operate FOSA shall apply for license from SASRA (section 23 of the Act and regulation 4(2)); and

All Sacco Societies already operating FOSAs are required to apply for license from SASRA by 17th June 2011.
3. What are the licensing Procedures?

The licensing procedures are detailed in Section 24 of the Act and Section 4 of the Regulations. These procedures are split into five main stages as explained below.

3.1 First stage: Application for License

Duly complete and submit the “APPLICATION FORM FOR A LICENCE” coded SASRA 1/001) in the regulations for SACCO Societies (Deposit Taking Business) to SASRA. This form is available here. The completed application form should be accompanied by supporting documentation including:

a) a certified copy of the Sacco society’s registration certificate, issued under the Co-operative Societies Act [Cap 490] Laws of Kenya.

b) a verified official notification of the Sacco society’s registered head office and branches, if any;.

c) a certified copy of the Sacco society’s bylaws.

d) a certified extract of minutes of the general meeting resolution authorizing the application for deposit taking license. This requirement applies to Sacco Societies seeking to commence FOSA operations.

e) name of the proposed chief executive officer.

f) Certified copies of the financial statements for the last three years

g) Evidence that the Sacco society has adequate capital by completing and submitting the Capital Adequacy Return (downloadable from www.sasra.go.ke) as set out in Form 1 in the second schedule to the Sacco Societies (DT) Regulations, 2010. Refer to the guidance notes on capital adequacy for capital requirements at the point of making the application for license.

h) Business plan and Feasibility study available here
A Sacco Society must prepare and submit a comprehensive four year business plan in line with the transitional provisions (and feasibility study for a Sacco Society making the application to commence FOSA operations) detailing:

1. the vision and mission;
2. Scope and nature of business operations;
3. Economic and financial environment;
4. Organizational structure and management;
5. Financial and risks analysis;
6. Projected financial statements and analysis using the format provided in the regulations. The projections should show how the institution will meet the prudential standards within the plan period, namely:
1.
Capital adequacy – indicate sources of capital over the plan period.
Loans quality and provisioning – Evaluate the loan portfolio, age the delinquency and make provisions as appropriate.
Liquidity – plans on liquidity management in full compliance with regulatory requirements.
Investment – divesting to comply with regulation 48 (limits on property, equipment and financial assets).
Sustaining the asset structure and quality

1. Control measures and monitoring procedures

The financial projections are based on the business plan and hence should assist in monitoring the strategic goals of the Sacco Society and therefore an implementation plan and monitoring framework should be included.

Note: Where the Sacco Society has a current business plan, the same should be reviewed in the light of the regulatory requirements and the four years transitional period.

h) Fit and Proper forms

Duly complete and submit the “Fit and Proper test” form (SASRA 01/002) with the application for license. The form should be completed by all persons proposed as directors and senior management as defined in the form. This form is available here.

3.2 Second Stage: Letter of Intent

SASRA will assess the application for fulfillment of the requirements in the first stage and if satisfied issue a Letter of Intent to the Sacco Society to put the following in place:

3.2.1 Institutional Infrastructure or business premises appropriate for deposit taking Sacco business. This includes but not limited to:

A banking hall;

A adequate working space;

Physical security measures; and

Strong room and safe.

3.2.2. Management Information System

The Sacco Society’s Information Management System must be capable of performing and accounting for all transactions and providing the minimum reports required by the Authority in an accurate and timely manner. The system should be operationally integrated and provide adequate security including data back up.

3.2.3 Risk Management policies and internal control systems

Sacco Societies face constant risks in the course of their business including credit, liquidity, interest rate, operational, reputation and regulatory risks. The Authority will require the Sacco Society to develop risk management policy framework addressing each of the risk identified. The risk management framework must address the following key considerations.

a. Clear definition of roles and responsibility of the Board and management in development, implementation and review of the risk management systems;

b. Adequate policies, procedures and limits;

c. Risk monitoring and information system;

d. Adequate internal controls and audit specific to each risk area.

3.3 Third stage: Onsite inspection

Upon completion of all the requirements specified in the Letter of Intent, the Sacco shall notify SASRA so that an independent on site inspection can be conducted to ascertain compliance. The inspection will be carried out within 30days from date of notification.

3.4 Fourth stage: Letter of Compliance

Upon completion of on-site inspection, if SASRA is satisfied that the Sacco Society has complied with all the conditions as stated in the letter of intent, it shall issue a compliance letter allowing the Sacco Society to pay the license fees within 30days.

3.5 Fifth stage: Issuance of a License

SASRA shall issue a license to the applicant Sacco Society upon payment of license fee of Ksh.50,000 (fifty thousand shillings) for head office and Ksh.20,000 (twenty thousand shillings) for each branch. The license shall be issued within 14days from the date of payment of the license fees.

4. What happens if a Sacco Society operating a FOSA at the commencement of the Regulations does not apply for license within the twelve months provided?

In line with Section 23(1), such a Sacco Society is in contravention of the law and the officers liable to the actions stipulated in section 23(2) of the Act among others.

5. Other matters

5.1 What happens after licensing of a Sacco Society?

a. The Authority shall within fourteen days from date of licensing publish in the Kenya gazette particulars of any newly licensed Sacco society.

b. At the beginning of each year and not later than 31st January, the Authority shall publish in at least one newspaper of national circulation particulars of licensed Sacco societies.

5.2 When is renewal of a license due?

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.

INVESTMENT BY SACCO

The core business of a SACCO society is to receive savings contributions from members and to provide them with credit facilities.  This is in form of revolving fund from the members’ savings. The law does not encourage co-operative societies to invest funds in non-core business.

If money doesn't grow on trees, why do banks have branches? :-)

The first investment that a SACCO Society should invest its funds in is in its members in the form of loans.  Here, the society can introduce as many loan products as is practicable.  Members should be able to apply and utilize as many loan products as they may qualify for.  This should be subject to the regulations in place for loans in general, and for each loan products.

When the members’ loan demand has been fully met and there are no pending loan applications due to inadequate funds for lending, the society can invest any surplus funds in financial instruments. this is because the funds can be recalled within short notice when the need arises.

The probable areas that SACCO Societies can invest surplus funds in include; purchase of shares in companies and other institutions, investing in Government treasury bills, putting money in fixed deposit accounts. Surplus funds should first be determined and should be invested in institutional funds or other SACCO.

Before the officials decide to invest any surplus funds and where, they should properly analyze the funds position and ensure the excess liquidity is not temporary and that the core business will not be affected.

Any investment of society funds outside the core business should be able to conform with and promote the basic goals and objectives of the society.  the society should be able to get maximum return on the investment for the benefit of the members.

For SACCO Societies that qualify and are able to open and operate Front office Service Activity (FOSA), surplus funds can be invested in that activity and be utilized by members through various products that may not be offered through the back office.  Such products include short term loans and advances and loan clearing for the back office.  These products have become very popular with members and are a good source of income for SACCO Societies.

Where a society wants to invest in a building for own accommodation, or enter into long term investment, then it should use institutional capital and not members funds.   Where a society invests in real estate other than for its own accommodation, it shall not hold more than 20% of the equity in the investment.  It should also not expend a sum exceeding 25% of its share capital in such venture.

SACCO Societies should not enter into the business of acquiring land or buildings for members. Members can form separate housing co-operatives for such activities.   Members should also be sensitized and encouraged to get individual loans from their societies and join with like minded friends to acquire property.  they can later decide on what to do with the property jointly acquired.

Any involvement in non-core business should get the approval of the Commissioner and general meeting through a special resolution.

EXCERPT FROM: Savings and Credit Co-operative Societies; Start-up Kit (Swiss Contact and Department of Co-operatives).