The Kenya Union of Savings & Credit Co-operatives Ltd (KUSCCO) scandal remains one of the most sobering wake-up calls in the history of Kenya’s cooperative finance sector. A forensic audit revealed that over KSh 13.3 billion had been misappropriated from member SACCOs, exposing weaknesses that threatened not just financial stability but also public trust in the sector. Deposits from over 247 SACCOs were at risk, shaking confidence and exposing a pressing need for systemic reform.   

The audit uncovered a mix of both sophisticated and brazen fraudulent practices. These included unauthorised transfers, illegal cash withdrawals, and executive loans without proper authorisation. Perhaps most alarming was the discovery that some transactions were allegedly signed off on using the signature of a deceased official, a clear sign of internal control failure. With 23 senior staff implicated and KSh 12.5 billion still unaccounted for, it became evident that the crisis was symptomatic of deeper, structural issues rather than isolated mismanagement.   

Based on these revelations, the Committee of Experts conducted an in-depth review of the SACCO sector, identifying systemic, structural, and regulatory gaps that have long hindered the sector’s performance and stability.   

A key issue is the regulatory and legal framework. Kenya currently operates a dual regulatory system, where only the 355 largest SACCOs are overseen by the SACCO Societies Regulatory Authority (SASRA), leaving over 5,000 smaller SACCOs unregulated or subject to less strict county-level supervision. This uneven oversight has led to inconsistencies in supervision and poses a significant risk to the sector’s credibility. Complicating matters is the fragmented legal landscape. SACCOs operate under multiple oversight regimes, which creates regulatory arbitrage, operational inefficiencies, and a slow drift away from their cooperative principles. Additionally, the distinction between Deposit-Taking (DT) and Non-Withdrawable Deposit-Taking (NWDT) SACCOs adds to the confusion, being both complex for the public and misaligned with international standards.  

Structural and infrastructure weaknesses further worsen the sector’s vulnerability. SACCOs are largely excluded from participating directly in the National Payment System (NPS), forcing them to route all payments through commercial banks. This reliance increases operational costs and delays transactions. Outdated legislation also restricts SACCOs to trading in Kenyan Shillings and prevents them from offering foreign exchange services, digital wallets, or operating as Payment Service Providers. Furthermore, multiple sector institutions duplicate functions such as training, ICT support, and liquidity provision, leading to unhealthy competition and resource wastage.  

Governance and accountability have long been ongoing issues. Many SACCO boards have become politicised, acting as de facto executives and meddling in daily operations instead of concentrating on strategic oversight. The lack of a formal Approved Persons Regime means individuals lacking integrity or competence can hold key leadership positions. Historically, sanctions for fraud or mismanagement have targeted institutions rather than the individuals responsible, reducing deterrence and allowing misconduct to continue.  

The sector also faces gaps in safety nets and liquidity. Unlike commercial banks, SACCOs lack a functional Deposit Guarantee Fund (DGF), leaving member savings vulnerable in case of institutional failure. Without a Central Liquidity Facility (CLF), SACCOs depend heavily on costly bank credit lines and are exposed to seasonal swings in loan demand. Furthermore, the absence of a formal Stabilisation Protection Scheme means that viable but distressed SACCOs often face unnecessary liquidation.  

Credit information sharing remains a concern. Current laws mandate SACCOs to report negative credit data but make sharing positive repayment history optional. This imbalance puts responsible borrowers at a disadvantage, as they could otherwise use their repayment record to secure better loan terms. Operational gaps, like employers failing to remit deducted savings to SACCOs, also endanger the financial stability of these institutions. Moreover, the low threshold for SACCO registration—requiring only ten members—has allowed poorly managed and under-capacitated entities to multiply, weakening the national SACCO brand.  

The KUSCCO crisis has, however, laid out a clear roadmap for reform. Central to this is transforming KUSCCO into a National Cooperative Federation, along with a rebranding that signals a genuine institutional reset. Governance reforms include the introduction of an Approved Persons Regime to vet and hold leaders accountable, a publicly accessible sanctions register to prevent offenders from moving unchecked between institutions, and a mandatory code of corporate governance separating board oversight from operational management. On the technological front, real-time monitoring through the Shared Services platform will enable regulators to detect unauthorised transactions before they escalate.  

Through these reforms, Kenya aims to rebuild trust and ensure that every shilling deposited in a SACCO is as secure as one in a commercial bank. By turning the wreckage of the KUSCCO scandal into a foundation for systemic reform, the country is positioning the SACCO sector as a robust, transparent, and trusted pillar of national development.