The regulated Sacco sector is becoming increasingly concentrated, with 61 tier-one societies controlling more than 70 percent of the market even as smaller groups hold on to their entities.
Sacco Societies Regulatory Authority (Sasra) chief executive David Sandagi says the slow pace of voluntary mergers has prompted the regulator to consider stronger measures, including forced mergers, to strengthen weaker societies and safeguard members.
In an interview with Business Daily, Mr Sandagi also discusses the widening gap between loans and deposits, lessons from the Kenya Union of Savings and Credit Cooperatives (Kuscco) crisis and the trade-off between dividend payouts and building capital.
Sasra has encouraged Saccos to merge to enjoy economies of scale and strengthen stability. Why have we not seen many mergers?
The regulated Sacco industry represents more than 90 percent of the assets of both regulated and unregulated Saccos. These assets are held by 357 regulated entities as of December 2025.
There are 61 tier-one Saccos with an asset base of Sh5 billion and above, and this segment constitutes over 70 percent of the market. This category has continued to grow in terms of its contribution and market share.
We also have mid-tier and small-tier Saccos that play a pivotal role in financial inclusion. There are more than 13,000 Saccos and co-operatives outside Sasra’s regulatory oversight, yet the market share they hold is less than nine percent in terms of assets.
It is inevitable that Saccos need to be well-capitalised to acquire best-in-class technologies, expand their outreach and integrate with other players within the financial ecosystem.
Amalgamations are provided for in law, but they are deemed voluntary. In 2024, we witnessed one successful merger and in 2025, another one. These have largely involved bigger Saccos taking over smaller ones, allowing members to transition seamlessly.
But recognising that voluntary mergers have not significantly changed the market, we have considered the need to deploy forced mergers. However, the law as it is today is restrictive because it provides for voluntary mergers, and therefore there would need to be perhaps an amendment to the statute.
That way, where the authority determines that there is an opportunity for a Sacco to merge with a stronger Sacco, regulatory tools could be used to encourage such mergers, safeguard members’ interests and maintain stability.
Thousands of Saccos remain outside Sasra’s prudential oversight, yet problems in that segment can affect the reputation of the entire sector. What needs to be done?
We currently have two layers of regulation covering deposit-taking and non-deposit-taking Saccos. The prioritisation of these two categories was based on scale and risk, and this has resulted in more than 90 percent of total Sacco assets now being under Sasra’s regulatory oversight.
The ministry’s position is that all Saccos should ultimately be regulated. Over the 15-year journey of regulation, we started with deposit-taking Saccos because they control the larger share of assets, mobilise deposits and savings, and are exposed to greater risks.
The ministry and Sasra are currently drafting co-operative regulations that will, among other things, guide how best the unregulated segment can be brought under regulatory oversight.
It is important to clarify, however, that these Saccos are not operating without any form of supervision. We have the Office of the Commissioner for Co-operatives, county directors of co-operatives and various county departments providing oversight.
What may not yet be in place is a prudential regulatory regime, and that is a work in progress.
Sacco lending has been growing faster than deposits. To what extent is the widening loan-deposit gap a concern?
I like the question of whether this gap is a challenge in the first place. The liquidity status of the industry is still well above the minimum regulatory requirements.
The traditional model has been that deposits are leveraged as the key consideration for accessing credit, ordinarily with a multiplier of three. Without a corresponding enhancement in deposit mobilisation, that has been a constraint over time.
What we are seeing is that a number of Saccos are developing savings products that more or less match the outflows in the form of loans over a specific period. The loan facility is pegged on continuous savings by members to bridge the loan-to-deposit ratio.
There is an opportunity for Saccos to devise additional strategies to mobilise deposits. In 2025, close to 80 percent of revenues were derived from interest income, so the traditional lending model remains central to the sector.
To what extent could lower Sacco lending rates, compared with banks, have contributed to faster loan growth?
Most certainly, a number of macroeconomic variables could influence lending behaviour, but this is not new to Saccos. Sacco members transact with their Saccos and are the owners.
Unlike in banking, where a customer may not have an explicit right to access credit, a Sacco member, upon compliance with eligibility requirements, has access to credit.
So, while a number of macroeconomic factors could have been at play, the big driver is the lending model.
Kuscco has been a painful episode for the sector. Would you say the crisis served as a wake-up call for the sector?
Yes. Looking at the legislative instruments before Parliament (the Co-operative Bill and the SACCO Societies Amendment Bill 2025) and what they seek to address, I foresee, and remain hopeful about, a much stronger framework.
I see the two legislative instruments as a critical cog in enhancing the stability, sustainability and resilience of the industry, including the various players defined within the Co-operative Bill.
These legislative reforms require parliamentary intervention, and we are subservient to the processes within Parliament.
The amendments are designed to ensure that there will be no legal lacuna in the operations of specific Saccos within the sector.
We are hopeful that the National Assembly will favourably consider the proposed amendments, which are necessary to strengthen the Sacco industry, enhance its stability and ensure efficiency.
Operationally, however, we continue to deploy and revise various standards. We have deployed a risk-based supervision system that is currently in use, which we envisage will enhance transparency while making our oversight methodology more effective and predictive.
Sacco dividends as a share of total income have fallen for two years as institutions build capital. How should members view this trade-off?
A Sacco member occupies such a pivotal place in ensuring stability and sustainability that there ought to be a consistent and tangible return.
At the same time, the Sacco member is an owner of the institution from which they derive affordable credit. Those credit facilities generate revenues that are then distributed as well as reserved to assure the member of the long-term sustainability of the entity.
The trade-off between affordable credit facilities and a return in the form of dividends or interest on deposits needs to be effectively balanced.
In 2025, Saccos, of their own volition, recognised the need to enhance retention to bolster their capital. Through retained earnings, Saccos have literally zero-cost capital, eliminating the need for expensive external borrowing.
As a regulator, we are keen to enhance stability. We therefore evaluate Sacco performance and ensure payouts are commensurate with performance, cash flows and the long-term sustainability agenda.