Inside Politics

Sasra racing against time to rein in ponzi schemes

Tuesday, August 17th, 2021 00:00 |
Sacco savings.

Sacco Societies Regulatory Authority (Sasra) is racing against the clock to examine documents presented by 138 non-withdrawal deposit-taking entities, with less than 30 days left before September 15 deadline. 

Plans to publish names and crucial financial details of non-deposit taking Saccos holding deposits worth Sh100 million and above had been hoped to be ready by now after the regulator in June slammed the door on applicants seeking its approval to operate under a new set of regulations. 

It follows the publication of the Sacco Societies (Non-deposit taking business) regulations, 2020, which took effect on January 1, 2021, and whose deadline for submission lapsed on June 30.

But so far only 50 Saccos, out of a total of 188 applications received by Sasra, have been issued with authorisation certificates, exactly 48 days since submission date lapsed.

This means the regulator will need extra days beyond the set September 15 target, if it is to complete the tedious assignment judging by the current pace in analysing documents of such firms, some of whom have been accused of running “Blockchain” Ponzi schemes.

Sasra will be tasked to approve or reject such applications based on its findings and the information and make known the names of qualified companies and the information shared by the Central Bank of Kenya (CBK). 

“So far, a total of 188 applications have been received, out of which the authority has issued 50 Saccos with authorisation certificates.

The remaining applications are under review and will be concluded on or before September 15, 2021,” reads a statement by Sasra last week.

Non-deposit taking Saccos refer to those that take deposits from members only in the form of share capital, but these amounts are refundable to them only when they leave the Sacco.

But there has been a growing concern over the existence of such Saccos run as Ponzi schemes by dodgy investors, approaching unsuspecting individuals who get fooled with a promise of extraordinary returns in exchange for their money.

Types of schemes

These types of schemes can offer consistent profits only as long as the number of investors continues to increase and once the number tapers off, so does the money.

Ponzi and pyramid schemes are self-sustaining as long as cash outflows can be matched by monetary inflows with swindlers often targetting investors keen to invest in the property and real estate sectors as well as other financial vehicles offering “easy, fast and convincing returns of investments.”

Investors give money to a portfolio manager. Then, when they want their money back, they are paid out with the incoming funds contributed by later investors.

The authority regulates 175 Deposit Taking Saccos in Kenya and estimates that there are about 400 Non-Deposit Taking Saccos that meet its criteria. Sasra further says that there are around 3,626 or more non-deposit taking Saccos in the country with a membership of over 1.5 million.

In regulatory circles, deposit taking Saccos operate like commercial banks whose regulator is the CBK and so central to their business models is the practice of providing a safe home for clients or depositors’ cash.

Such deposits enjoy a unique status since they are protected from loss, guaranteed by national insurance schemes such as the Kenya Deposit Insurance Corporation (KDIC) for bank customers and are given a high rank in such institutions’ capital stack.

This, however, is missing for non-deposit taking Saccos, which has left customers’ deposits at the mercy of cons and fraudsters because of the absence of laws and regulations in place meant to cushion them from such financial and investment losses.

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