Risk versus reform: Is the Cooperatives Bill a threat to Sacco stability?

This story has significance for readers across Kenya and beyond.

Editor’s Note: In this commentary, Alex Munyua, a policy analyst, examines the potential impact of the Cooperatives Bill on Kenya's Sacco sector. He unpacks the tension between the proposed regulatory centralisation and the need for cooperative stability, questioning whether the legislation offers genuine reform or introduces structural risks for savers. Munyua argues for a nuanced approach that prioritises prudential oversight without compromising the autonomy of the cooperative movement.

The National Treasury and the State Department for Cooperatives recently issued consecutive public statements clarifying that the state harboured no legislative intent to draw upon the KSh 1 trillion asset base of the savings and credit cooperative (Sacco) sector to fund the National Infrastructure Fund.

The statements followed a weekend of widespread digital anxiety among savers, detonated by a doctored graphic circulating on social media that fabricated a quote attributed to Treasury Cabinet Secretary John Mbadi.

How does the Cooperatives Bill impact Saccos?

The immediate trigger was misinformation, and Treasury was right to call it that. But the fuse was already laid: the fast-tracked Cooperatives Bill 2024, and public remarks by Deputy President Kithure Kindiki about wanting Sacco capital eventually channelled into infrastructure investment vehicles, meant the hoax landed on genuine, pre-existing anxiety rather than manufacturing it from nothing. Separating the trigger from the underlying cause is the point of this piece.

This friction cannot be understood purely as an isolated hoax debunked by a press release. Rather, the public panic serves as a diagnostic symptom of a structural mismatch between top-down regulatory design and the decentralised architecture of Kenya's informal and semi-formal financial institutions.

The current legislative push is a textbook example of what the political scientist James C. Scott called "administrative legibility." Governments like systems they can see clearly and measure easily — it makes tax collection, oversight and data-gathering simpler. But when that instinct is forced onto a messy, diverse sector, it can quietly weaken the very thing that made the sector work. The question for Kenya is simple: does making a system easier to govern also make it easier to break?

For over a century, Kenya's cooperative movement (Ushirika) has functioned less like a planned corporate grid and more like an old-growth forest.

Kenya's Sacco sub-sector alone counts close to eight million members and over Ksh 1 trillion in accumulated assets, nested within a wider cooperative movement — spanning agricultural, marketing, and housing cooperatives — of an estimated 14 million Kenyans.

Its strength comes from what the Nobel-winning economist Elinor Ostrom called polycentric governance — in plain terms, many small, independent decision-makers looking after their own patch, rather than one central office running everything.

A rural agricultural Sacco in Rumuruti lends based on local knowledge and community trust; an urban Sacco in Nairobi runs on payroll-deduction algorithms. This diversity is not an administrative defect; it is a structural buffer. In a natural forest, localised adaptation ensures that if a single tree decays, the broader canopy remains intact.

Admittedly, this old-growth forest is not idyllic. The lack of standardised central visibility historically means the sector contains significant dead wood: invasive governance failures, insider malpractice, and devastating localised management impunity that has occasionally depleted member funds. But a system like this only works if there are clear rules and real consequences. Too often, local management committees have used the lack of central oversight to steal from their own members instead.

The state's primary justification for the Cooperatives Bill 2024 and the Sacco Societies (Amendment) Bill is stability — a legitimate prudential objective to mitigate this insider fraud, protect member deposits, and establish a modernised, tiered regulatory framework.

But the state's instinct here works like a managed timber plantation, not a forest: swap out diversity for uniform, easy-to-audit rows. This shows up well beyond Sacco regulation. Take the 12% general wage order, signed into law in May 2026. It follows the same top-down logic: one wage rule applied to businesses in very different financial positions — though even the order's scope is disputed.

The Federation of Kenya Employers says it only applies to minimum-wage earners; the Central Organisation of Trade Unions insists President Ruto meant it as a general increase for all workers. Either way, the pattern holds: a single wage hike, applied uniformly, ignores that a well-capitalised company can absorb a 12% jump easily while a low-margin small business gets squeezed hard enough to push it into the informal economy.

None of this means there's a secret plan connecting the wage order and the Sacco bill. It's simpler than that: a government that's short on cash will naturally look for ways to bring loosely regulated pools of money — like the wages people negotiate informally, or the savings sitting in Saccos — under closer central watch.

What are the risks of a centralised Sacco system?

This shift shows up clearly in the text of the new bills themselves. The Cooperatives Bill 2024 hands sweeping powers — registration, auditing, dispute resolution — to a single national office: the Commissioner for Cooperative Development.

But the Constitution's Fourth Schedule makes cooperative development a devolved function, meant to sit with county governments. So there's a real question worth asking, even though no court or committee has settled it yet: does putting this much power in one national office quietly sideline the role counties are supposed to play?

So far, the sector's public pushback has focused on a narrower issue — new two-term limits for Sacco board directors, which the Cooperative Alliance of Kenya has openly opposed. The bigger devolution question, in my assessment, hasn't really been answered by the bill's supporters yet — not because they've dismissed it, but because almost nobody has forced them to address it directly.

The Sacco Societies (Amendment) Bill goes further, adding a central register of approved officeholders and a mandatory Central Liquidity Facility (CLF). A CLF has real upside: it lets Saccos pool reserves and lend to each other in a crunch, which lowers the risk for any single Sacco.

But it also changes the sector's risk profile in a bigger way. Instead of many separate, independent root systems, you get one shared reservoir. And if something goes wrong at the centre — a bad call, a liquidity shock — it can spread through the whole system at once, instead of staying contained to a single Sacco.

The paperwork and compliance costs of these new reporting and capital rules will also fall hardest on smaller, community-based Saccos. A large urban Sacco can absorb the cost of constant compliance without much strain. A small agricultural or marketing cooperative often can't — and may be forced into consolidation, severing the community trust that made it work in the first place.

Can the state manage centralised funds effectively?

Here's the real question the bill doesn't answer: can the state actually run something this centralised well?

The law assumes the central regulator will get it right. But the state's own systems have a track record of struggling to manage money responsibly.

In December 2025, a rogue payroll clerk within the Kenya Prisons Service allegedly used compromised system credentials to push through fraudulent allowance payments of over KSh 41 million to nearly 1,000 officers in a single day — a case the Directorate of Criminal Investigations began formally probing this year.

If the government can't fully secure its own payroll, one of its most closely watched systems, it's fair to ask hard questions about whether it's ready to oversee a trillion-shilling private savings pool.

And here's the part worth sitting with: once private Sacco savings are pooled into one central fund, the government doesn't need to seize anyone's money outright to benefit from it. It only needs to write the rules so that pooled savings flow naturally toward government-backed infrastructure investments.

How can the Kenyan government preserve cooperative movement integrity?

To preserve the integrity of the cooperative movement, the strategy for citizen and sector stakeholders must centre on legal and structural counter-balances:

- Constitutional litigation on devolution. Saccos, acting through the Co-operative Alliance of Kenya (CAK), can collaborate with the Council of Governors to challenge the bill's centralised mandates in court, arguing that bypassing county-level regulatory frameworks conflicts with Article 186 and the Fourth Schedule.

- Asset insulation via internal by-laws. Individual Saccos can proactively amend their internal governance charters to mandate that any transfer of institutional reserves into centralised liquidity platforms or state-directed investment instruments requires a 75% supermajority vote from the general membership during Annual General Meetings.

- Rigid public participation records. Member unions must systematically document and submit technical memoranda to the Clerk of the National Assembly under Article 118, creating an evidentiary record of the sector's specific objections to top-down administrative consolidation.

However, stakeholders must confront a brutal political reality: if the state controls the Commissioner for Cooperative Development — who holds the power to approve or revoke Sacco registrations — that Commissioner can simply decline to register a Sacco's amended by-laws if they obstruct state architecture. The legal framework will not automatically operate in good faith, and the state can use its new "legibility" powers to coerce compliance regardless of AGM votes.

What can Kenya learn from Germany's cooperative model?

Kenya's real choice was never between total local freedom and total state control. The actual task is figuring out how to add proper oversight without flattening the local knowledge and independent decision-making that have kept cooperatives strong for over a century.

Germany offers one model worth studying: its Genossenschaftsverband, or cooperative auditing associations. Regional cooperative networks there handle the first layer of auditing and risk-pooling themselves, which keeps individual Saccos out from under direct state paperwork — while still holding the whole system to a high standard through peer-based accountability.

The objective for Kenya must be to capture the efficiency of centralised data collection (legibility) without creating the vulnerability of centralised capital pools. We must design institutions capable of installing fire-detection sensors in the forest, rather than cutting the trees down to build a plantation.

The author, Alex Munyua, writes on African political economy, sovereignty, and institutional design. His email: estlexmunyua@gmail.com.

Views expressed in this article are solely those of the author and do not necessarily reflect the official position of TUKO.co.ke.

Source: TUKO.co.ke

Reporting originally appeared via TUKO. Read the full source for additional context.