Cooperatives Urged to Combat Unethical Practices Amid Financial Struggles

Cooperative and MSMEs Development Cabinet Secretary Wycliffe Oparanya highlighted pressing concerns regarding unethical business practices within the cooperative movement, particularly among Savings and Credit Cooperative Organizations (SACCOs). The CS noted that many SACCOs are facing liquidity challenges largely due to excessive borrowing to pay dividends, a practice that undermines financial sustainability.

Oparanya expressed deep concern over a trend where top management in various SACCOs has been borrowing heavily to distribute large dividends, often without aligning these payouts with actual profits. This mismanagement has resulted in unmanageable debts and challenges with regulatory bodies. “A significant number of top management leaders in SACCOs have been borrowing to distribute dividends that contradict the annual profits earned,” he stated.

This practice is particularly acute in coffee cooperatives, where leaders are resorting to substantial borrowing to meet the high earnings expected by coffee farmers. Oparanya pointed to a troubling example where a coffee cooperative sold a kilogram of coffee for Sh80 at auction yet paid farmers Sh100 per kilogram. “Where did the cooperative find the extra Sh40 to pay the farmers?” he questioned, emphasizing the unsustainability of such financial maneuvers.

The implications of these practices extend beyond financial instability. Oparanya warned that high payouts, even when cooperatives are not making profits, lead to perpetual debts that become impossible to settle. “The issue with paying out high earnings, even when the cooperative isn’t making profits, is that it leads to perpetual debts that cannot be settled,” he explained. He acknowledged some improvements in the sector but noted that governance issues remain a significant challenge.

To address these concerns, Oparanya announced the implementation of a whistleblowing policy by the Sacco Societies Regulatory Authority (SASRA). This policy aims to promote integrity and transparency within cooperatives, encouraging the reporting of misconduct, fraud, and unethical behavior. He emphasized that every board member and employee has a responsibility to ensure compliance and report breaches. “Good governance is non-negotiable, and we must transition from rhetoric to action to preserve the integrity of our cooperative movement,” he asserted.

Chairman of the National Council for Ushirika Day, Macloud Malonza, countered the gloomy outlook by highlighting the resilience of the cooperative sector despite ongoing challenges. He noted that cooperatives have shown stability, with improved agricultural and financial performance in recent times. “Coffee farmers are seeing better prices, food production has increased, and tea farmers are expected to receive their largest bonus in years,” he stated.

Malonza also pointed out that financial cooperatives continue to experience double-digit growth, with commendable returns to members. “Looking ahead, the sector’s outlook is promising as we approach the final quarter of the year,” he added, reflecting optimism amid ongoing efforts to address the pressing issues highlighted by Oparanya.

The event also recognized exemplary SACCOs for their outstanding management, with Kenya National Police Deposit Taking Sacco taking first place, followed by Tembo (EABL) Sacco and Ports Sacco in second and third, respectively. These accolades serve as a reminder that ethical practices and sound governance are critical for the sustainable success of the cooperative movement.

As the cooperative sector continues to navigate its challenges, the emphasis on integrity, transparency, and responsible management will be vital in ensuring its growth and stability. The call to action from leaders like Oparanya and Malonza underscores a commitment to reforming practices that threaten the foundational principles of cooperation and mutual benefit that these organizations were built upon.