Role of SASRA in enforcing capital adequacy
The Sacco Societies Regulatory Authority (SASRA) plays a crucial role in ensuring that Savings and Credit Cooperative Societies (SACCOs) in Kenya maintain adequate capital to safeguard member deposits and enhance financial stability. Established under the Sacco Societies Act of 2008, SASRA is tasked with licensing, regulating, and supervising SACCOs to ensure they meet the required capital adequacy standards. Below we detail the role of SASRA in enforcing capital adequacy.
Licensing and Supervision
SASRA enforces capital adequacy by setting minimum capital requirements that SACCOs must meet before receiving operational licenses. These requirements include maintaining a core capital of at least ten percent of total assets, an institutional capital of at least eight percent of total assets, and a core capital to total deposits ratio of at least eight percent. Regular supervision ensures that SACCOs adhere to these regulations, thereby promoting financial soundness and reducing the risk of insolvency.
Risk-Based Regulation
To strengthen financial resilience, SASRA implements risk-based supervision, where SACCOs with higher exposure to risks such as credit and liquidity challenges are subjected to more stringent oversight. This approach helps identify early warning signs of financial distress and allows for corrective action before a SACCO becomes unstable. By requiring SACCOs to maintain capital buffers, SASRA ensures that they can absorb potential losses and continue operating effectively.
Enforcement and Compliance
SASRA has the authority to take enforcement actions against SACCOs that fail to meet capital adequacy requirements. These measures include issuing compliance directives, suspending licenses, and imposing penalties. In extreme cases, the regulator can take over the management of struggling SACCOs to protect member deposits. This proactive enforcement framework enhances accountability and promotes a stable financial sector.
Promoting Financial Sustainability
Beyond regulation, SASRA provides guidance and training to SACCOs to help them strengthen their financial position. By encouraging SACCOs to adopt sound financial management practices, including effective risk assessment and capital planning, SASRA helps them achieve long-term sustainability. Additionally, it promotes mergers and strategic partnerships among SACCOs to enhance their capital base and competitiveness.
Author: Andrew Walyaula
Andrew Walyaula is a seasoned multimedia journalist. satrendmagazine@gmail.com
