Sacco members face cuts on dividends after the regulator asked cooperatives to make provisions of about Sh7.67 billion in the insolvent Kenya Union of Savings and Credit Co-operatives (Kuscco).
The additional provisioning, expected this financial year, comes as Saccos already retain a larger share of their surpluses to strengthen their capital. This will set the stage for a second consecutive year of lower average payouts to members from profits.
Sacco Societies Regulatory Authority (Sasra) chief executive David Sandagi said in an interview Saccos under its purview had made significant progress in providing for their Kuscco investments, but about Sh7.76 billion remained to be fully provided for in line with financial reporting requirements.
‘Regulated Saccos have progressed to continuously provide for the investments in Kuscco. We have noted that there has been very good progress in terms of provisioning for the investments in Kuscco. There still remains about Sh7.7 billion that should, within due course, be fully provided for to comply with the financial reporting standards,’ said Mr Sandagi.
The provisioning looks set to put a strain on surpluses available for distribution, particularly for Saccos that still carry unprovided Kuscco investments on their books. The provisions mean the cost of Kuscco failure will be absorbed through the financial statements of individual Saccos rather than being left as an asset whose recovery remains uncertain. In 2025, interest expenses on members’ deposits and dividends on share capital amounted to a record Sh64.62 billion from Sh59.74 billion in the previous year. However, the share of payouts in total income fell to 37.39 percent from 39.05 percent in 2024, being the lowest since 2020 when Saccos distributed 38.31 percent of their income as firms and households battled Covid-19 scourge.
The falling share of payouts points to a changing Sacco model in, which a greater proportion of annual surpluses is being retained to build institutional capital and support lending capacity.
Saccos may update the provisions to write-offs depending on how much they realise from Kuscco’s liquidation. Those that had already written off their investments may write them back based on how much they recover from the process.
In March last year, several Saccos had disclosed the size of their investments in Kuscco, including Balozi (Sh437 million), Mhasibu (Sh408 million), Kimisitu (Sh353 million), Qona (Sh134.7 million), Kenpipe (Sh149 million), Sheria (Sh146 million), Stima (Sh108 million), Amref (Sh90 million and LSK (19 million).
The likes of Stima, Kimsitu, Balozi and Kenpipe had made full provisions for the investments as at the end of December 2024.
The regulator cautioned the organisations against underplaying the Kuscco hit and offering generous dividends to members.
Co-operatives and Micro, Small and Medium Enterprises (MSMEs) Development Cabinet Secretary Wycliffe Oparanya said the outstanding balance of shares and deposits placed by Saccos in Kuscco had fallen to Sh7.76 billion from Sh16.1 billion after provisions already made by the affected institutions.
Saccos had invested billions of shillings in Kuscco but a PricewaterhouseCoopers forensic audit made public early last year revealed the entity suffered about Sh13.3 billion heist under the watch of former officials who have since been charged in court.
Mr Oparanya described the provisioning as ‘painful’ but ‘necessary ‘in light of Kuscco’s liabilities being more than assets and members having recently agreed to liquidate the institution that suffered fraud.’
‘Efforts to revive Kuscco have not succeeded because of the deep insolvency. Although painful, this [provisioning] is a necessary and prudent reporting decision because the affected funds can no longer be considered recoverable,’ said Mr Oparanya during the recent launch of Sacco sector report.
Some Saccos had last year written off their investments in Kuscco while others opted for staggered provisioning, even as Sasra pushed for stronger capital buffers in the industry. The expected Sh7.76 billion additional provisions could impact members’ returns come next year, coming against a backdrop of falling Sacco payout rates as institutions increasingly retain earnings to build their capital bases.
Sasra’s supervision report for last year shows that the average dividend paid on members’ share capital fell to 10 percent from 10.46 percent in 2024. Average interest paid on members’ deposits also declined to 6.72 percent from 7.14 percent over the same period.
The regulator attributed the lower payouts to Saccos retaining a larger proportion of their surpluses to strengthen capital and cushion themselves against unexpected losses. The lower payouts coincided with significant strengthening of Sacco capital. Aggregate capital reserves rose 16.27 percent to Sh229.67 billion in 2025 from Sh197.54 billion, with retained earnings reaching Sh63.45 billion.
Sasra said the increase reflected Saccos ploughing more profits back into reserves instead of distributing all their surpluses. The regulator has also linked the stronger capital position to interventions limiting dividends, interest on members’ deposits and other costs where necessary.
Mr Sandagi said the reduction in payouts should be viewed alongside the need to build institutions capable of supporting members over the longer term. ‘That very narrative [for higher payouts] is what has, in certain instances, caused problems,’ he said, referring to a culture in which members focused heavily on which institutions offered the highest dividends.
He said the industry is increasingly embracing the need to enhance surplus retention and strengthen capital, noting that retained earnings provide zero-cost capital that reduces reliance on expensive external borrowing. ‘What we observed within the year 2025 is that, from a business perspective, Saccos, out of their own volition, recognised the need to enhance retention to bolster their capital,’ said Mr Sandagi.
‘As a regulator, we are also keen to enhance stability. We have kept applying a very keen evaluation of sacco performance, ensuring that payouts beyond those that a Sacco could have initially suggested are equally matched by performance and cash flows and go hand in hand with the long-term sustainability agenda.’
The tension between payouts and capital building is also emerging as Saccos expand their loan books. Gross loans and advances across regulated Saccos increased 12.25 percent to Sh948.67 billion in 2025 from Sh845.11 billion, while member deposits rose 11.12 percent to Sh832.74 billion.
The gap between deposits and loans saw Saccos partly rely on retained earnings and institutional reserves to finance their lending portfolios, making capital retention important for the sector.
Mr Oparanya also warned Saccos against using borrowed funds to maintain member payouts, signalling a regulatory preference for distributions that are supported by internally generated surpluses.
‘I reiterate that no Sacco shall tap external borrowing to pay dividends or interest on deposits. Borrowing may only be undertaken with the approval required by laws and for legitimate productive and sustainable purposes,’ he said.
The pressure on payouts is therefore likely to persist as Saccos balance competing demands for member returns, capital accumulation and recognition of losses arising from the Kuscco collapse.