The financial troubles in Kenya’s cooperative sector have grown worse. A new regulatory move now threatens to wipe out hundreds of millions of shillings belonging to member saccos.
According to the writer, Patrick Alushula, the Insurance Regulatory Authority (IRA) has placed Kuscco Mutual Assurance under statutory management. The insurer is a subsidiary of the Kenya Union of Savings & Credit Co-operatives (KUSCCO). This move has blocked efforts to sell the insurer and recover funds owed to Saccos.
The decision puts Sh660 million at risk. Eighteen saccos had turned outstanding insurance claims into equity in the insurer. They did this to cut the insurer’s liabilities and attract buyers. Now, with the IRA handing oversight to the Policyholders Compensation Fund (PCF), those equity stakes could shrink or disappear if the insurer goes into liquidation.
A Sale Derailed
Before the regulatory action, Kuscco was in talks with potential buyers. It wanted to sell its 60 percent stake in Kuscco Mutual for at least Sh1.6 billion. The money was meant to partly repay Saccos. Kuscco owes them billions following an alleged Sh13.3 billion scandal at the organization.
Statutory management stops the insurer from taking on new clients or writing new policies. The insurer now enters a recovery and assessment phase. If it fails to raise fresh capital in time, liquidation becomes likely. Liquidation rarely raises enough money to pay all creditors. Shareholders usually bear the losses.
Kuscco Mutual joins Trident Insurance Company and Corporate Insurance Company among the entities affected by Monday’s IRA action.
Repeated Warnings Went Unheeded
The IRA had warned Kuscco Mutual several times before stepping in. In December last year, it moved to cancel the insurer’s license. It withdrew that notice in January after the insurer submitted a recovery plan. But the regulator was clear — failure to comply would lead to firm action, with no further warning.
Kuscco Mutual did not follow through on its own plan. The IRA found several breaches. The insurer fell below the required minimum capital adequacy ratio of 100 percent. It also lacked IRA-approved staff in key management roles. In addition, it failed to keep either Sh5 million or five percent of its total assets, whichever is higher, deposited at the Central Bank of Kenya.
Saccos Bear the Brunt
The Sh660 million at risk equals 55 percent of the Sh1.2 billion the insurer owes in outstanding liabilities. Most of this is unpaid insurance claims owed to saccos. Many cooperatives paid premiums to the insurer for years. The problems began when alleged mismanagement and theft hit the Kuscco umbrella body.
For saccos, the situation is dire. They converted unpaid claims into equity to support a sale that would eventually repay them. That plan has now stalled. The original Kuscco investment in the insurer stood at about Sh1.6 billion. That value is now deeply uncertain.
