Lead Author: Russell Crowe
Contributing Authors: Moses Kibathi and Maryanne Wambui Muiruri

Introduction

The Sacco Societies (Amendment) Bill, 2025 (the “Bill”), introduced into the National Assembly on 10 June 2025, proposes far-reaching reforms to Kenya’s SACCO regulatory and operational framework. If enacted, the Bill will introduce a new institutional tier within the SACCO ecosystem, significantly alter liquidity management structures, operationalise deposit protection mechanisms, and expand the supervisory mandate of the Sacco Societies Regulatory Authority (SASRA).

The reforms are expected to have wide-ranging implications for SACCOs, fintech companies, lenders, payment service providers, auditors, and depositors.

Analysis of Key Proposed Amendments

1. Establishment of the Central Liquidity and Shared Services Facility
2. The Legal Change

Clause 5 of the Bill inserts a new Part IIIA into the principal Act, comprising sections 28A through 28J. Section 28A provides that thirty or more licensed or authorised SACCO societies may form a secondary co-operative society in accordance with the Co-operative Societies Act (Cap. 490). Section 28B defines the permitted activities of such a society, which are broad and banking-adjacent in character. Section 28E requires that any co-operative society undertaking central liquidity and shared services business obtain a licence from SASRA before commencing operations.

2. Permitted Activities (Section 28B)

The range of permitted activities is commercially significant and warrants careful attention. A licensed secondary co-operative society may:

• hold and maintain a liquidity reserve account for each member SACCO;
• receive a prescribed minimum liquidity amount from member SACCOs;
• take deposits from member SACCOs and invest in Government securities;
• offer short-term lending to member SACCOs and facilitate inter-SACCO lending;
• subject to CBK compliance requirements, participate in the inter-bank market;
• provide a shared services platform and settle payment transactions for member SACCOs;
• issue payment instruments to member SACCOs;
• offer intermediary or agency services in domestic and international transfers;
• facilitate trade finance, including performance guarantees; and
• provide daily liquidity and performance reports to SASRA.

 

The inter-bank market access provision is particularly consequential. It means that, subject to CBK compliance with the Central Bank of Kenya Act (Cap. 491), a licensed secondary co-operative society can access liquidity mechanisms previously available only to licensed banking institutions. This represents a genuine structural upgrade for the SACCO sector’s liquidity position.

3. Prohibited Activities (Section 28C)

The Bill draws a clear boundary. A secondary co-operative society undertaking this business shall not: transact in deposit-taking with natural persons; lend to natural persons; undertake wholesale or retail trade; or invest in venture capital. The policy logic is containment since the facility is a wholesale inter-institutional mechanism, not a retail financial services provider in competition with its own member SACCOs.

4. Capital and Liquidity Requirements (Section 28F)

Section 28F requires that a licensed secondary co-operative society maintain, at all times, prescribed capital adequacy and liquidity adequacy requirements, as determined by SASRA. It further requires that the society maintain a minimum holding of member SACCOs’ deposits in a Central Liquidity Fund as may be prescribed. These requirements are left to be detailed in regulations, a delegation of significant substantive content that means the commercial implications of this provision will not be fully understood until the regulations are published.

 

Practical Implication: Capital Requirements The capital adequacy and liquidity standards for the secondary co-operative society will be set by SASRA in regulations, not in the Bill itself. SACCOs forming or contemplating membership in such a facility should engage with SASRA’s regulatory development process early. The standards adopted will determine whether the facility is commercially viable for small and mid-tier SACCOs or effectively restricted to large ones.

Fig. 1

5. Governance (Section 28G)

The governance structure requires that the secondary co-operative society be directed by a Board of non-executive directors elected by member SACCOs or appointed as prescribed in by-laws. Each society must have a CEO appointed by the Board, who is also an ex officio Board member. No person may be appointed or elected as a Board member or senior officer without prior SASRA approval as a fit and proper person. This is a standard borrowed from banking regulation. It shows the intensity with which SASRA intends to supervise this new institutional layer.

6. Regulatory Powers (Section 28H)

SASRA’s powers over the secondary co-operative society are extensive. They include the power to license, determine capital adequacy standards, prescribe minimum liquidity requirements and permissible investments, and supervise through on-site and off-site inspection. SASRA is also empowered to assess the suitability of persons managing or controlling the facility, approve Board composition and senior officers before appointment, approve external auditors, and approve annual audited accounts. Sections 49 through 54 of the principal Act, which relate to existing SASRA supervisory powers over DTSs, apply with necessary modifications.

7. Penalties (Section 28I)

Contravention of the provisions of Part IIIA attracts a fine not exceeding KES 3 million or imprisonment for a term not exceeding five years, or both. This is a substantial sanction and underlines the legislature’s intention that the Central Liquidity Facility framework be treated as a serious legal obligation, not an aspirational standard.

1. Operationalisation of the Deposit Guarantee Fund
2. The Legal Change

Clauses 6 through 9 of the Bill address the Deposit Guarantee Fund in three distinct ways: by reconfiguring the governance of the Board of Trustees, by clarifying the claims procedure after licence revocation, and by introducing a formal commencement mechanism for Fund payments.

2. Board of Trustees Governance (Clause 6 — Amendment of Section 56)

The Bill replaces the current chairperson provision with one requiring appointment by the President of a non-executive chairperson with knowledge and at least fifteen years’ professional experience in banking, supervision and regulation of financial institutions, insurance, commerce, law, accountancy, or economics. This is a significant elevation of the qualification threshold and an explicit signal that the Board of Trustees is expected to function with institutional credibility rather than as a nominal oversight body.

The Bill also introduces four independent members, two nominated by the registered secondary co-operative society representing the majority of SACCOs, and two appointed directly by the Cabinet Secretary by virtue of knowledge and not less than ten years’ experience in co-operative or banking financial supervision and regulation. Representation by both state and sector interests, balanced by independence requirements, brings the Fund’s governance closer to the model used by deposit insurance bodies in other similar jurisdictions.

Standard disqualification criteria are retained: serving SACCO officers, auditors, associates of auditors, and persons failing to meet Chapter Six of the Constitution standards are excluded.

3. Protection from Liability (Clause 7 — New Section 57A)

New section 57A provides that no member of the Board of Trustees, officer, employee, agent, or servant of the Fund shall be personally liable for acts or omissions done in good faith in the performance of functions under the Act. This is a standard immunity provision. Critically, subsection (2) makes clear that this immunity does not relieve the Fund itself of liability to pay compensation for injury or harm caused by the exercise of any power conferred by the Act or by failure, whether wholly or partially, of any works. The Fund remains liable; its officers are protected if they acted in good faith.

4. Claims Procedure (Clause 8 — Amendment of Section 59)

The Bill amends section 59 to clarify that upon revocation of a SACCO’s licence or authorisation, a member may lodge a claim with the Deposit Guarantee Fund in such form and within such time as the Fund may determine, for payment of protected deposits that would have been paid but for the revocation. The Board of Trustees retains discretion to refuse payment to persons who, in its opinion, had responsibility for or benefited from the circumstances leading to the revocation.

This discretionary refusal power is important. It means that directors, officers, and associated parties of a failed SACCO may be excluded from deposit protection, this is a provision with both deterrence value and potential for contested claims where the line between management responsibility and individual culpability is unclear.

5. Commencement of Payments (Clause 9 — New Section 59A)

New section 59A is technically brief but practically essential. It provides that no payments of claims shall be made from the Fund unless a date for the commencement of such payments has been appointed and published in the Gazette by the Cabinet Secretary in consultation with the Cabinet Secretary responsible for finance. This provision fills the gap that has left the Fund operationally dormant, there has previously been no clear legal mechanism to trigger the payment phase. Its insertion gives the Fund a defined activation procedure and, for the first time, makes deposit protection a real rather than nominal feature of the SACCO regulatory framework.

 

Practical Implication: Deposit Protection Now Has Teeth The combination of governance reform (Board of Trustees), a working claims procedure, and a Gazette-triggered payment mechanism means that the Deposit Guarantee Fund will, for the first time, be capable of functioning as genuine deposit insurance. Members and SACCOs should treat this as a real change, not a legal formality. SACCOs that have not been contributing adequately to the Fund or maintaining prescribed deposit levels should reassess their position.

Fig. 2

C. The SACCO Shared Services Framework

Section 28B(i) through (l) introduces what amounts to a formal legal basis for SACCO shared services infrastructure. The permitted activities include provision of a shared services platform for member SACCOs, settlement of payment transactions, issuance of payment instruments, and offering intermediary or agency services in domestic and international transfers.

This is a significant development for the intersection of SACCO operations and payment regulation. A licensed secondary co-operative society providing payment settlement services will need to satisfy not only SASRA’s requirements but also, where relevant, the payment systems oversight framework of the Central Bank of Kenya. The Bill requires compliance with CBK requirements for inter-bank market participation and CBK Act statutory liquidity reserve requirements, but the extent of CBK oversight over the shared services platform itself is not addressed in the Bill and will require regulatory clarification.

For fintech companies, payment service providers, and core banking system vendors operating in the SACCO sector, this creates both a strategic opportunity and a compliance question. The opportunity is that a centralised, licensed secondary co-operative society creates a single, institutionally serious counterparty for technology and services integration, more reliable than bilateral arrangements with individual SACCOs. The compliance question is who bears regulatory responsibility when a service failure occurs within the shared platform: SASRA, the secondary co-operative society, the technology vendor, or the individual member SACCOs.

D. Enhanced Regulatory and Reporting Requirements

The extension of sections 49 to 54 of the principal Act (SASRA’s existing supervisory powers) to secondary co-operative societies, combined with the daily liquidity and performance reporting obligation in section 28B(n), introduces a reporting intensity that many entities in the current SACCO sector are not accustomed to. Daily reporting to SASRA is a banking-grade obligation. It assumes the existence of real-time data systems, treasury management functions, and compliance infrastructure that smaller or newly-formed secondary co-operative societies may not yet possess.

The fit and proper approval requirement, mandatory before any Board member or senior officer takes up appointment, adds a further layer of regulatory engagement that will affect the speed of institutional formation and governance transitions. SASRA’s current processing capacity for such approvals in the SACCO sector has not been tested at scale; the Bill does not prescribe timelines for such approval, which may become a practical bottleneck.

 

. Structured Impact Analysis

A. Impact on SACCOs

Entity	Key Impact	Priority Action
Large DTSs (>KES 1B assets)	Opportunity to lead formation of secondary co-operative society. Liquidity backstop and inter-bank access fundamentally improve balance sheet management. Early fit and proper submissions will be important.	Assess feasibility of forming or anchoring a secondary co-operative society. Engage SASRA on capital adequacy regulations before they are finalised.
Mid-tier DTSs	Position-dependent. Participation in a secondary co-operative society offers shared services benefits and deposit guarantee credibility. Non-participation risks a two-tier sector where liquidity access is unequal.	Model the cost of minimum liquidity contributions against the benefit of liquidity backstop and payment infrastructure. Decide participation posture before the formation window closes.
Small DTSs	Compliance cost is the dominant concern. Daily reporting, fit and proper requirements, and capital contributions may strain operational capacity. Membership of a secondary co-operative society may be practically necessary rather than optional.	Begin operational readiness assessment. Identify data and reporting gaps. Engage sector bodies on whether a tiered participation model will be available.
Non-DTS SACCOs	Largely unaffected by this Bill directly. However, if secondary co-operative societies begin offering services that blur the DTS/non-DTS distinction, regulatory pressure on the sector boundary may increase.	Monitor regulatory interpretation of the secondary co-operative society’s retail prohibition.

 

B. Impact on Businesses Dealing with SACCOs

Lenders and Creditors

Commercial banks and other lenders with credit exposure to SACCOs should reassess their counterparty risk framework. A licensed secondary co-operative society with capital adequacy requirements, SASRA supervision, and access to the inter-bank market is a materially different credit counterparty than an individual SACCO. Security structures, covenant packages, and credit conditions applicable to SACCO borrowers may need updating to reflect both the new institutional capacity and the new regulatory obligations that constrain asset disposition.

Fintech and Technology Providers

The creation of a licensed shared services entity with payment settlement, payment instrument issuance, and platform provision functions creates a natural integration point for core banking technology providers and payment infrastructure operators. However, it also concentrates systemic risk: a failure of the central platform would affect all member SACCOs simultaneously. Technology vendors should expect SASRA to require contractual protections, business continuity arrangements, and source code escrow provisions as part of the licensing conditions for a secondary co-operative society engaging technology partners.

Payment Service Providers

The inter-bank market access provision and the payment settlement function will bring secondary co-operative societies into direct contact with CBK’s payments oversight framework. Payment service providers that currently operate through bilateral SACCO integrations should anticipate that their commercial relationships will be restructured through the secondary co-operative society, which will become the licensed institutional counterparty for settlement purposes.

Auditors and Professional Service Firms

External auditors of secondary co-operative societies will require SASRA approval. This introduces a regulatory nexus into the audit engagement that does not currently exist for individual SACCOs. Audit firms with SACCO sector practices should assess whether their appointment processes and independence frameworks are adequate for this additional layer of approval.

C. Impact on Members and Depositors

The operationalisation of the Deposit Guarantee Fund is the most direct benefit to individual members and depositors. Protected deposits up to KES 100,000 per member, the threshold established under section 59 of the principal Act, will now have a credible payment mechanism behind them. Members of SACCOs that subsequently fail should expect a defined claims process with a Gazette-triggered payment date, rather than the current uncertainty.

The access of secondary co-operative societies to shared payment infrastructure, payment instruments, and inter-bank settlement also benefits members indirectly: SACCO financial services will become more convenient and competitive. The longer-term implication of inter-bank market access, potential access to external liquidity, should also reduce the frequency and severity of liquidity-driven withdrawal restrictions, which have historically been a significant source of member dissatisfaction.

Members of SACCOs that become insolvent following a governance failure should note the Board of Trustees’ retained discretion to refuse payment to persons who had responsibility for or benefited from the circumstances of insolvency. This is a standard provision in deposit insurance frameworks globally, but it is worth noting that the Bill does not prescribe a procedural framework for exercising that discretion, an omission that may generate contested claims.

V. Key Risks and Opportunities

A. Regulatory Compliance Risks

The most immediate risk is regulatory readiness. The Bill’s framework for secondary co-operative societies requires capital adequacy and liquidity standards, fit and proper criteria, code of conduct rules, licensing conditions, sandbox conditions, and enforcement procedures, all of which are left to regulations that have not yet been published. SACCOs who begin formation steps based on current Bill text will be operating in a partially defined regulatory environment. The risk of doing too much too early (and needing to restructure once regulations are published) is real.

The penalty regime is sharp. A fine of up to KES 3 million and five years’ imprisonment for breach of Part IIIA is a serious sanction at the institutional level, and the personal liability of directors and officers for knowing failures of compliance, provided under section 35 of the principal Act, which applies to SACCOs and by extension their secondary co-operative societies adds individual exposure that board members and senior managers should take seriously from the outset.

B. Liquidity and Capital Implications

The minimum liquidity contribution requirement, member SACCOs must maintain a minimum holding of their deposits in the Central Liquidity Fund, will represent an off-balance-sheet commitment that affects individual SACCO liquidity ratios. Until SASRA publishes the prescribed minimum, clients cannot model the precise impact. What is clear is that the requirement will not be trivial: the policy purpose of the Fund is to provide genuine systemic liquidity support, which requires that contributions be meaningful.

Capital adequacy requirements for the secondary co-operative society itself will determine whether such entities can be formed by a single cohort of SACCOs or whether they will require aggregation across a larger membership base. The Bill sets the floor at thirty SACCO societies for formation, a relatively low threshold, but the capital requirements may in practice require considerably broader participation to achieve viability.

C. Technology and Integration Opportunities

The creation of a licensed, SASRA-supervised entity authorised to operate shared payment platforms, issue payment instruments, and settle transactions is a genuinely new market opportunity in the Kenyan financial sector. It creates a procurement and partnership opportunity for technology providers of scale, these are core banking platforms, payment gateways, and treasury management systems, that did not previously exist in a structured institutional form within the SACCO sector.

It also creates an opportunity for the SACCO sector to leapfrog some of the technology fragmentation that has held it back. A well-capitalised secondary co-operative society with SASRA backing and inter-bank access could be a credible anchor for a SACCO-specific financial infrastructure layer that competes seriously with commercial bank offerings for the mass market segment.

Mobile money integration deserves particular attention. The shared services platform authorised under section 28B includes domestic and international money transfer services. Whether this creates a direct interface with mobile money operators, or whether regulatory constraints impose limitations on that interface, will depend on CBK’s interpretation but the commercial opportunity is clear.

What Should Be Done Now

The Bill has passed its first reading and the direction of reform is clear. The following actions are appropriate at this stage, before enactment.

For SACCOs

1. Conduct a gap analysis against the Part IIIA framework now, including assessment of current liquidity ratios, capital positions, governance structures, and reporting capabilities.
2. Identify your formation posture: whether you will be a founding member of a secondary co-operative society, a subsequent joiner, or a non-participant, and model the commercial consequences of each.
3. Begin preliminary Board and senior management fit and proper assessments to identify potential issues before SASRA approval processes commence.
4. Engage SASRA’s regulatory development process on capital adequacy and liquidity standards. The window between publication of draft regulations and their finalisation will be the critical moment for sector input.
5. Review current arrangements with technology providers, payment processors, and auditors in light of the new approval requirements and platform integration implications.

For Businesses Operating in the SACCO Sector

1. Map your current contractual exposure to SACCOs against the new institutional structure. Agreements that assume a direct bilateral relationship with an individual SACCO may need amendment if services migrate to a secondary co-operative society.
2. Assess licensing implications under CBK and SASRA for any services you currently provide that will fall within the secondary co-operative society’s authorised activities.
3. Identify technology integration opportunities early. First-mover advantage in providing core banking, payment, or settlement infrastructure to secondary co-operative societies will be significant.
4. Review credit risk assessments and security structures for SACCO counterparties. The introduction of capital adequacy and liquidity requirements changes the risk profile of SACCO entities in material ways.

For Members and Depositors

1. Understand that deposit protection under the Deposit Guarantee Fund is now moving from paper to practice. If your SACCO is in poor financial health, you should assess whether your deposits remain within the KES 100,000 protected threshold.
2. Be aware that the Board of Trustees retains discretion to refuse payment to persons with management responsibility for or who benefited from a SACCO’s insolvency, if you serve on a SACCO committee or board, that discretion may affect you.

 

VII. Conclusion

The Sacco Societies (Amendment) Bill, 2025 is not incremental reform. It creates a new institutional layer within the SACCO sector, operationalises deposit protection that has been dormant since the principal Act was enacted, and extends banking-grade regulatory requirements, being capital adequacy, fit and proper approval, daily reporting, SASRA supervision, into territory that has previously operated with considerably less oversight.

The policy direction is sound. A sector managing member savings of the scale that Kenya’s SACCO industry now represents cannot indefinitely operate without a formal liquidity facility, without functioning deposit insurance, and without access to modern payment infrastructure. The Bill addresses all three deficiencies in a single legislative package.

The execution risk, however, is real. The regulations that will define the quantitative standards, capital, liquidity, minimum contributions, have not been published, and the timeline for their development is not specified in the Bill. The fit and proper approval process at scale has not been tested. The CBK/SASRA interface on payment regulation for secondary co-operative societies remains undefined.

These are not reasons to wait. They are reasons to engage early, model carefully, and position your institution for a sector that will look structurally different within two years of this Bill’s enactment.

 

This Client Alert is prepared for general information purposes only. It does not constitute legal advice and should not be relied upon as a substitute for specific legal advice tailored to your circumstances. Clients should contact the firm for advice on the matters discussed in this Alert