Page 37 - Issue 48_press_efile

POLICY AND REGULATIONS
The proposed SIMs admission criteria
would have been tantamount to diluting
the economic democracy of these
financial institutions.
On the face of it, the Bill which was presented to parliament
was well intentioned as it sought to make credit available
to those looking to invest in start-ups, which are currently
highly underfunded as financiers like banks consider these
businesses high risk.
However the bill proposed two amendments which proved to
be contentious with players in the sector, as these changes
sought to create a special group of members, the Social Impact
Members (SIMs) who would enjoy total autonomy within the
SACCO, as well as create a special fund for the sole utilization they are not members of the Society in the first place.
of the SIMs.
As it stands, for one to become a member of a SACCO one needs
to purchase a set minimum number of shares, however all
members have equal voting rights irrespective of the number
of shares held. This democratic voting right is exercised during an independent body corporate with its own Memorandum &
AGMs to vote for or against proposed resolutions.
These membership rules would have however not been
applicable to the Social Impact Members, SIMs. The withdrawn
Bill had proposed an amendment of the Co-operative Societies
Act introducing this new class of members who would not have
been required to purchase shares like the other members. The
SIMs admission would have been through a simple resolution
at the AGM. Despite not being registered members, the SIMs
would have however still held equal voting rights with other
members.
According to the umbrella body for SACCOs in Kenya,
KUSCCO, which has been at the forefront in lobbying against
the contentious amendments, the proposed SIMs admission
criteria would have been tantamount to diluting the economic
democracy of these financial institutions. Had it been passed,
this proposal would have been in violation of the third Co-
operative principle on economic member participation
requiring that members contribute equitably to the capital of
their Co-operative.
Secondly, the Bill had also proposed an amendment of the
SACCO Societies Act to introduce a Special Fund which would
lend to eligible individuals looking to invest in start-ups.
This fund would solely be financed by the SIMs, and one of
the major concerns expressed by SACCO players was that the
source of these monies would remain unknown to the larger
SACCO membership, and this would have left the financial
institutions open to even more risks.
According to the SACCOs one of the major risks they were
facing with these changes was the threat of money laundering.
Section 44 of the Proceeds of Crimes and Money Laundering
Act, 2009 requires financial institutions to monitor and report
suspected money laundering activity. However, with the SIMs,
the SACCO would have no way of verifying and monitoring the
source of the Special Fund. Further, section 45 of the same
act requires financial institutions to verify customer identity.
However, if this proposal had sailed through, SACCOs would
have had no capacity of verifying the identity of the SIMs, since
The other proposals around the special fund included a Special
Investment Committee comprised of non-SACCO members
appointed by the SIMs, as well as an advisory board. The fund
would have also enjoyed a special fund trustee which would be
Articles of Association and not a member of the SACCO Society.
Currently, corporate membership is prohibited by Co-operative
Societies Act.
Essentially, the Bill’s proposals were for a sovereign exclusive
class of members, the SIMs, who would not be accountable to
other members through an AGM, and who would not only vote
and conduct businesses themselves, but who would also share
profits accruing from investments solely amongst themselves.
The proposed amendments, as KUSCCO pointed out, would
also have led to a distortion of the Co-operative governance
structure and created a second center of power beyond
reproach within SACCOs.
According to sector players, this exclusivity of the proposed
SIMs and their operations would have introduced bias, conflict
of interest and bred mistrust within SACCO memberships. This
would in turn lower the credibility of the SACCOs and result in
reduced confidence by members and the general public and
possible disinvestment and/or failure to invest.
It is therefore easy to see why the withdrawal of the Bill is
being hailed as good news for the sector.
(The article was first published in the Standard Newspaper)
35| SACCO Star Magazine