Cooperative societies have been warned against placing members’ funds in unregulated firms, with the government cautioning that the practice exposes savers to significant financial risk and breaches existing law.
The Commissioner for Cooperative Development, David Obonyo, issued the warning in a circular dated December 23, 2025, citing growing concern that some cooperatives are investing in institutions that operate outside regulatory oversight. The circular, which was also copied to the Sacco Societies Regulatory Authority (Sasra), said such actions violate both the Cooperative Societies Act and related regulations.
“The State Department for Cooperatives has noted with concern that some cooperative societies are placing members’ funds in unregulated institutions, thus posing a significant risk to members’ funds,” Mr Obonyo said. He added that the practice is inconsistent with the legal, fiduciary, and prudential obligations imposed on co-operative societies.
Fallout from unregulated investments
The warning follows revelations that several savings and credit co-operatives (SACCOS) face potential losses running into billions of shillings after being exposed to fraud and mismanagement at the Kenya Union of Savings and Credit Cooperatives (KUSCCO), an umbrella body that is not regulated. The situation has intensified scrutiny on how co-operatives manage and invest members’ savings.
Under Section 45 of the Cooperative Societies Act, co-operatives are required to invest or deposit funds only in licensed institutions such as banks, trust funds, and statutory bodies. The provision aims to protect members’ savings by limiting exposure to high-risk or opaque investment vehicles.
Legal limits on non-core investments
Regulations also restrict co-operatives from venturing into non-core investments without proper approval. Rule 50 of the Co-operative Societies Rules bars societies from investing in non-core businesses unless they receive approval from the commissioner and secure a special resolution from members at a general meeting.
The latest directive could force co-operatives that have breached these rules to divest from illegal investments. Failure to comply may expose officials to sanctions or other regulatory action. The law further empowers the commissioner to intervene where a society’s business is conducted in breach of the Act or in a manner detrimental to members’ interests, including appointing a suitable person to guide compliance.
Push for compliance and accountability
Mr Obonyo stressed that co-operatives have a duty to safeguard members’ savings and ensure that all investments comply with the law. He warned that the pursuit of higher returns should not come at the expense of prudence and regulatory compliance.
The caution comes amid reports that some co-operatives have turned to private firms, informal investment schemes, and other unregulated financial entities in search of attractive yields. Such moves have increased the risk of losses, especially where these entities operate without regulatory oversight.
Sasra chairman Jack Ranguma echoed the concerns in the 2024 Sacco Supervision Annual Report, noting that 2023 and 2024 were marked by financial turbulence linked to the impairment of investments made in securities issued by unregulated entities. He observed that while some of these investments pre-date the current supervisory framework, the close links between regulated Saccos and unregulated issuers continue to pose systemic risks.
“In view of the foregoing, all cooperatives are hereby directed to comply with this directive in line with provision of the law,” Mr Obonyo said, signaling tougher enforcement as regulators seek to protect members’ funds and restore confidence in the co-operative sector.
