The regulator of cooperative savings and loan societies (saccos) has urged public university-sponsored societies to lend to members only with salary accounts to tame the rise in non-performing loans, which are approaching 3 billion shillings.
The move follows findings that the amount of loan repayments, which were deducted from sacco members’ salaries but not returned by public universities and tertiary colleges, more than tripled in three years to 2 .68 billion shillings in 2020.
The Sacco Societies Regulatory Authority (Sasra) annual supervision report shows that cash-strapped tertiary institutions accounted for 62.07% of the 4.31 billion shillings in deductions for repayment of defaulted loans in 2020, compared to 39.5% in 2018.
This prompted Sasra to issue a directive to university-sponsored saccos to ensure members process their salaries through Front Office Service Activity (Fosa) accounts before obtaining loans.
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“We have urged the saccos to deal only with the member in regards to loan repayment. If a member wants a loan, they must take responsibility for repaying the loan. Don’t tell the employer to deduct and remit to the sacco,” chief executive Peter Njuguna told the business daily.
Universities’ cash flow has been hit hard in recent years after falling entrance grades negatively impacted lucrative parallel degree courses in which students paid fees based on market rates.
Falling enrollment from self-sponsored students, which generated billions of shillings for the institutions, has led to a cash crunch, prompting universities to close several campuses.
This has seen outstanding remittances from universities to the Kenya Revenue Authority, National Hospital Insurance Fund, National Social Security Fund, Pension Schemes, Insurance Companies, Saccos and Banks climbed to 62 billion shillings in June 2021, from 34 billion shillings the previous year.
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Mr Njuguna said the directive had helped slow the growth of deductions for repayment of defaulted loans by universities, which were the highest in 2019.
“It worked well because now the saccos only give you a loan when you have an account with us,” he said.
“Either you pay the money or you bring your salary point to the sacco Fosa,” the Sasra chief said. “The problem is that you are caught because there is a third party that your sacco has appointed to be the one who will deduct savings and loans, but has not delivered.