Demutualization: The Case of Deposit Taking Saccos in Kenya

Abstract

Savings and Credit Cooperative Societies are independent, voluntary organizations of individuals united by a shared objective: to foster savings and provide credit to members, thereby contributing to their economic empowerment. SACCOs have long been regarded as a crucial instrument for encouraging savings and investments among Kenya's middle and lower-income demographics. As these co-operatives grow larger and more complex, their desire for growth, increased financial sustainability, and adaptation to market conditions intensifies. This often leads to greater pressure for demutualization as a restructuring strategy. In such cases they are forced to take a different organizational form, usually one owned by shareholders. This typically involves transferring the capital accumulated over the years in the co-operative to private investors. This research paper empirically examines the regulatory framework governing demutualization of deposit taking cooperative societies in Kenya. Despite the presence of a legislative framework such as the Cooperative Societies Act, Chapter 490, and the Sacco Societies Act No.14 of 2008, demutualization remains infrequent in Kenya’s cooperative sector. These laws do not comprehensively address demutualization process, leaving cooperative societies without clear guidance on how to navigate this transformation. This paper explored the history of cooperative regulations in Kenya since independence. Additionally, the paper analyzed the effectiveness of the laws in place in relation to demutualization as a whole. In particular, the researcher has conducted a conceptual analysis of past demutualization of Cooperative Bank of Kenya Limited and CIC Insurance Group Plc to adduce further analysis of the regime of demutualization in Kenya. Additionally, the researcher also conducted an analysis of the legal regime in Australia, United States of America, and Canada in a bid align and suggest possible reforms to the Kenyan regulatory framework. These countries offer practical lessons and conclusions from which Kenya can borrow in a bid to streamline the regulatory framework. This research concluded that in order to promote cooperative practice in Kenya, there is need to enact laws to regulate demutualization. Additionally, the researcher concluded that there is need to enact legislation in Kenya to address the legal gaps that currently exists and promote effective demutualization of deposit taking Saccos without legal challenges.