When SIC announced its withdrawal freeze early this year, the numbers seemed contradictory. The cooperative reported owning assets worth over Sh6 billion in land parcels across high-growth satellite counties and regional hubs, yet members seeking their funds were turned away.
The explanation lies in liquidity, a term members rarely discuss at annual general meetings. Liquidity denotes how quickly an asset can be converted to cash. In layman’s terms, cash in a bank account is perfectly liquid, whereas a half-built apartment complex, where contractors abandoned the site, that is frozen capital, technically an asset practically useless.
This isn’t a new story. We have witnessed cooperative failures since 2010. The pattern is identical. Their collapse follows a classic trajectory in financial mismanagement: the asset-liability mismatch. This happens when an institution’s obligations to members come due long before its investments can be turned back into cash.
When members join cooperative societies, their expectation is monthly contributions that are withdrawable upon request, accessible savings through specific liquidity products, and prompt loan processing.
The mismatch is obvious in retrospect. Collapsed cooperatives have been suspected of taking deposits to pour them into speculative real estate and paying dividends using new members’ deposits rather than actual investment returns to maintain an illusion of solvency.
Most use trusted brand names of their parent company to create a sense of shared identity. This gives new members the confidence to join. When members begin requesting withdrawals, the cooperatives fall into a liquidity trap with wealth on paper, and none available in practice.
Perhaps the most insidious is the valuation gap between what cooperatives claim their assets are worth and what they could fetch in a distressed sale.
The crisis isn’t an isolated failure, it is a warning about the entire investment cooperative sector in Kenya. We have witnessed dozens of saccos establish investment arms mostly christened housing cooperatives where they invest in speculative real estate development.
The appeal is understandable. Kenya’s property market has seen explosive growth, particularly in counties following devolution. With members struggling to purchase land and housing, saccos saw an opportunity. They use pooled savings to purchase land cheaply, develop it, and sell to members at affordable rates. The returns dwarf traditional lending margins.
These projections often ignore the reality that land banking requires holding costs for years and sub-division requires regulatory approvals that can stall for months. Construction requires continuous injection of capital, and through it all, members continue contributing monthly, expecting their savings to remain accessible.
The government has responded to mounting cooperative sector failures with a proposed regulatory overhaul for deposit-taking saccos. The recommendations are designed to have all saccos regulated, Sasra’s oversight tightened and the Deposit Guarantee Fund (DGF) operationalised to ensure saccos can self-sustain.
The Cooperative Bill 2024, currently advancing through Parliament, further strengthens this framework by establishing a cooperatives tribunal to resolve disputes, introducing criminal penalties for mismanagement, and mandating annual member education on rights and obligations.
While these safeguards offer a robust shield for savers in deposit-taking saccos, they arrive as cold comfort for members of investment cooperatives as they operate in a regulatory grey zone.
Members holding shares in cooperatives hold uninsured equity, not deposits. The liquidity rule mandating cash reserves applies only to regulated deposit-taking institutions. Cooperatives operating under the under-resourced Commissioner of Cooperatives bypass Sasra’s surveillance entirely, creating a regulatory blind spot where problems fester unseen until collapse.
Before committing savings, ask whether the cooperative could meet sudden withdrawal demands of at least 15 percent without liquidating core assets. If the response requires completing projects first or awaiting market recovery, you are facing a liquidity trap.
Even when provided with internal valuations of land and property, members should request third-party valuation reports from recognised firms.
Since investment cooperatives lack the statutory liquidity protection that deposit-taking Saccos enjoy, members should demand transparency about cash reserves specifically earmarked for withdrawals.
To protect cooperative members, specific reforms are necessary. First, expand DGF coverage to include investment shares held in cooperatives above a certain threshold, creating a backstop for members who currently absorb all institutional risk.
Second, mandate regular liquidity disclosures so prospective members see actual cash reserves before committing capital, aligning with the Cooperative Bill 2024’s emphasis on informed consent.
Third, all cooperatives should fall under Sasra oversight, regardless of their technical classification, eliminating the blind spot where oversight currently fails.
Fourth, fast-track the Cooperative Bill 2024 to give members accessible dispute resolution when projects stall or funds are unaccounted for.