How to Form and Register a Sacco in Kenya

There has been a boom in the country, responsible for lifting thousands of Kenyan entrepreneurs to financial stardom which has seen financial institutions and policy makers tap to harness the potential of the new craze. The cooperative society commonly referredto as SACCO is known to have over Sh300 billion in assets with members of these societies having investments in real estate, stock markets, and bonds among others. We take a look at how to register and kick start a SACCO in the country.

The number of successful cooperatives is as high as the number of failed ones with mismanagement and internal squabbles responsible for the demise. But where does it all begin, and what is needed in starting a SACCO or being a member of one in the country.
It takes an average of a month for a company to register a cooperative society and help its employees have a saving culture and available soft loans for personal and professional development. Businesses which have more than 10 employees can register a cooperative or if less members, they can join an existing one and promote the growth of the employees.

David Malinga of the Genius Executive Center, an outsourcing and consultancy firm for entrepreneurs, explained the process “first you need to write a letter to the County Cooperative Officer stating who the organization is made of and what they plan to accomplish. Then give the organization’s contact people, which should be two people. Thereafter provide a list of not less than 10 employees, their signatures and identity numbers. Finally state the amount that is to be contributed monthly.”

There are many different types of cooperatives, commonly known as SACCOs that exist. They include housing cooperatives, consumer cooperatives, agricultural or marketing or farming cooperatives, multipurpose cooperatives, producer cooperatives and savings and credit cooperative societies. Business’ ideal type is the savings and credit cooperatives as their purpose is largely pooling resources together tosupport each other. In Kenya, the cooperative movement is government by the co-operative Societies Act, Chapter 490 of the Laws of Kenya.

This Act gives guidelines on how they are supposed to remit taxes to the Kenya Revenue Authority, differently from limited companies since they are recognized in law as associations which are non-profit making ventures. The law discourages them from venturing into investments although with the approval of the commissioner of cooperatives, they can invest in the stock exchange like in shares, government bills or bonds.

Cooperatives have a minimum amount members are to contribute in a month and this sheds light into the amount that would ideally be contributed by the cooperative. However it is more likely that some members will contribute more hence the minimum amount may be higher. The ten members’ minimum is set to ensure the company has some stability and it becomes easier to guarantee loans among members. As a registered institution, except when company’s cooperative is located in a different office location from where the business is, then the regulations like office permits are not inclusive of what they are expected to pay.

Also, the registration is primarily done under the commissioner of cooperatives who is a one stop shop with the exception of the revenue authority for filling annual returns and where necessary taxes of employed members specifically working in the cooperative. David added that “the County Cooperative Officer will meet the group and verify whether the group is viable to register or not.” The County Cooperative Officer will then give the members a constitution template to use as a guide in writing their own constitution. They will also need to write their by-laws. These documents will then be forwarded to the commissioner for cooperatives for issuance of certificate.

The constitution will guide issues like when a member leaves prematurely and how to deal with it. For instance if a member leaves abruptly, the constitution could state that his savings will be used to offset any loans he or she has and that his last salary will also be used for this purpose until the full amount is recovered.

It will also shed light into loans. For instance, it could state the number multiplied by the share deposits to get a loan. Many say the loan are a maximum of three times the shares. Other imperatives could be the type of loan whether long term or short term and this will guide issues like interest rate of loans which are largely below 2% on a reducing balance. Moreover issues like dissolution of the cooperative will also be included in the constitution which will have to be approved by the County Cooperative Officer who will retain a copy for future reference as issues may arise. For Nairobi residents, the offices are at Nyayo house while for other districts, the registrations are done at the District Officer’s offices.