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Why SACCOs in Uganda have been exempted  from paying tax

Finance Minister Matia Kasaija has explained why Savings and Credit Cooperative Organization (SACCOs) have been exempted from paying tax on their incomes effective July 1—for ten years.
“I want every Ugandan to belong to a financial institution of some sort. This business of keeping money under the mattress should stop. SACCOs are the nearest (to what) many people in villages have as financial institutions,” he explained.
Speaking at a post 2017/18 budget dialogue organized by the Uganda Revenue Authority on Monday in Kampala, Kasaija said with more Ugandans keeping their money in formal settings, the economy will benefit in the long run.
“When you keep money under the bed, it is not available for multiplication. I want money to come to financial institutions so it is used for increased productive work.”
He also revealed that SACCO leaders petitioned his ministry to have the taxes on their cooperatives dropped.
In the budget that was presented to the nation last week, SACCOs were exempted from paying taxes on their incomes until June 30, 2027.
In the recent past, SACCOs have sprung up across the country, as many Ugandans bid to secure their futures through savings. To tap into the growing popularity of these cooperatives, some banks have rolled out products to partner with them.
Some SACCOs have grown so big that they handle money with hundred millions and billions of shillings.
However, if a SACCO employs staff, to whom a salary is paid, that salary is subject to taxation.



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How unlicensed online SACCOs prey on savers 

Kenyans are at risk of losing their hard-earned savings through online SACCOs and investment schemes that are not licensed.

These digital deposit-taking saccos and schemes sign up users online and begin to take in savings via mobile money platforms, with some promising handsome returns.

The Central Bank of Kenya and Sacco Societies Regulatory Authority (SASRA) are the sole licensing authorities for deposit-taking institutions in Kenya.

For example, Milazi describes itself as an online investment co-operative society. Investors sign up online and deposit cash using M-Pesa.

Homepesa Sacco, which is not licenced by SASRA, is taking withdrawable deposits. It is registered to only undertake back-office operations, meaning it cannot take withdrawable deposits.

“Homepesa Wallet enables you to deposit and withdraw cash, anywhere any time. Deposits can be done via M-Pesa and credit cards while withdrawals are done via M-Pesa and bank transfers,” the sacco says on its website. 

Zeepo, a network of mobile money and banking agents, also offers customers a savings option through a mobile app or signing up via the web.

“Save, borrow, pay, transfer and insure from one place — on mobile or an outlet near you, so that life doesn’t have to stop because of closing time, tedious processes or red-tape,” Zeepo says on its website.

J-Hela, which describes itself as a mobile SACCO platform, is also taking withdrawable deposits without a SASRA licence. J-Hela is owned by Patrick Wainaina, the chief executive of Jungle Nuts, a macadamia nuts processor in Thika.

Mr Wainaina is running to be Thika Town MP.

“Withdrawal is from J-Hela to M-Pesa using withdrawal J-Hela withdrawing procedures. There is an upcoming service to withdraw from J-Hela to ATM. No limited amount when withdrawing but the membership fee of Sh60 remains as the minimum balance,” says the platform on its portal.

Milazi, Zeepo, J-Hela and Homepesa Sacco were yet to respond to our queries on their licensing to take deposits by the time of going to press. They are also missing on the latest schedules of approvals by the two regulators. 

The Business Daily first wrote to the CBK on April 4, 2017 bringing to the banking regulator’s attention of these online deposit-mobilising schemes. Two days later, the CBK and Sasra put out notices in the dailies warning wananchi of unlicensed deposit-taking entities and pyramid schemes.



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Central Bank of Kenya warns banks of opening accounts for fake SACCOs


Banks and other financial institutions have been warned against opening accounts for dubious pyramid scheme businesses operating as SACCOs. Central Bank of Kenya (CBK) in a circular issued late last month urged banks to ensure they scrutinise transactions where non-deposit taking SACCOs mobilise huge sums from unsuspecting Kenyans. “This circular is to caution financial institutions against dealing with or offering any services to any unlicensed entities undertaking activities involving mobilisation of funds from the public,” wrote Director of Bank Supervision at CBK Gerald Nyaoma. There has been a rise in businesses duping Kenyans to save and buy land or stagger payments for off-plan houses only to close shop and take off with their money. 


For instance, Ekeza Sacco and Gakuyo Real Estate Ltd are said to have lured over 7,000 Kenyans eager to buy homes or own land before making away with over Sh3 billion. Another firm, Simple Homes used a pay-rent, own-home model, where several people were asked to register using Sh2,500 then save 25 per cent of the value of the property they wanted to buy, only for the orchestrators to close shop and vanish with their money. This prompted a joint notice to the public by CBK and Sacco Societies Regulatory Authority (SASRA) in April, warning that unlicensed deposit-taking entities and pyramid schemes had made a big comeback. 


The regulator now wants to clamp down on banks and micro-finance institutions that help channel money to the fraudsters. CBK said banks must establish who owns each account, ask for details about how the business operates, conduct ongoing due diligence and monitor transactions of the non-deposit taking SACCOs. 




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KUSCCO sets up IT firm for members

Kenya Union of Savings and Credit Co-operatives (KUSCCO) has established a software company to enable small co-operative societies offer mobile banking services.
Managing director George Ototo said IRNET Kenya (ICK), to run as a separate entity, will offer a pay-per-use facility for small and medium sized SACCO members.
The umbrella body said the new IT portal to be housed at KUSCCO will enable the small SACCOs compete with the larger peers with own digital banking platforms.
KUSCCO owns 75 per cent of ICK—61 per cent stake was donated by the World Council of Credit Unions (WOCCU) at no cost while KUSCCO bought a 14 per cent stake at an undisclosed amount. The rest of the shares are held by the WOCCU.
“The future provision of financial services is digital banking and ICK gives the small saccos a platform to offer services to their members securely via the web and on mobile phone Apps. Each SACCO will have its secure portal thereby saving them the need to acquire ICT infrastructure and cost of employing staff to man the facility,” said Mr Ototo.
The facility is a cloud-based computing system accessible from any Internet-enabled device. It has a mobile banking option that allows members to use their phones to access financial services from their respective SACCOs.

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SACCO body escapes regulatory coalition

The SACCO Societies Regulatory Authority (SASRA) will go it alone in strengthening transparency among savings cooperatives after successfully lobbying to be excluded from a looming merger of all financial regulators. Commissioner for Cooperative Development Mary Mungai said a delegation including 22 leaders of cooperative movements that visited President Uhuru Kenyatta, convinced him to drop SASRA from the merger plan. “I want to assure all of you that SASRA will not be included in the Financial Services Authority (FSA). Cooperative movements operate on a business model unique from normal commercial entities,” she said.

This means the committee gazetted on November 18, 2016 to spearhead the merger of the country’s four major financial regulators will only handle Retirement Benefits Authority, Capital Markets Authority and Insurance Regulatory Authority. Speaking during the Kenya Union of Savings and Credit Cooperatives (KUSCCO) annual delegates meeting in Nairobi, Ms Mungai said SASRA has been in existence for only seven years and will be strengthened rather than killed. Merging the four institutions into one, the government had argued, would provide a better and organised regulatory approach to the increasingly integrated and converged financial services.

But even with SASRA set to remain on its own, Ms Mungai said prudential guidelines will be strengthened to help seal regulatory loopholes in the SACCOs. SACCOs currently hold over Sh600 billion in customer deposits. “FSA had very good intentions. We are going to take seriously the issue of prudential standards. We want them to be strengthened so that the movement can grow further,” said the commissioner. Some briefcase institutions disguised as SACCOs have in the recent past plunged members into distress by folding unexpectedly and running away with mobilised funds. Meanwhile, SACCOs have been put on the spot for failing to refund exiting members their money on time.

During the meeting, KUSCCO Managing Director George Ototo cautioned the societies on holding onto members’ contributions against their will. “Some are taking even more than a year to refund members. If such cases reach the tribunal, it will not only damage the reputation of the SACCOs involved but also make it costly for them,” he said. Since some SACCOs are operating more efficiently than others, members may want to shift from poorly-performing entities but such SACCOs hold onto their funds to block the move.


ISO 9001

KUSCCO has attained the highly coveted ISO 9001:2008 certification. The award represents KUSCCO’s commitment to the continuous improvement of service efficiency and effectiveness, customer satisfaction and superior performance in all business operations. This will also enable KUSCCO to compete effectively and to broaden its market outreach in the broader financial market.