A Study of Coporate Governance Among Saccos

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CHAPTER 1
INTRODUCTION
1.1 BACKGROUND
Governance is the process by which a board of directors, through management, guides an institution in fulfilling its corporate mission and protects the intuitions assets over time. (principles and practices of microfinance governance, by Rachel Rock Maria Otero Sonia Saltzman). However, the success of and strength of a financial cooperative in some parts of the world shows that governance issues can be transcendence when basic principles are followed. Therefore is corporate governance the cause of all troubles in Saccos? Governance is a system designed to control and distribute power within an organization for economic, corporation and development (OCED). Corporate governance involves a set of relationships between a company management, its board, shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company and means of attaining those objectives and monitoring performance are determined. Saccos were first introduced in Kenya in 1964. In 1969 the government made a radical relationship which has been the rapid growth of Saccos in Kenya. Today there are estimated 2600 active Sacco’s societies in Kenya which together have been able to mobilize Kenya shillings. In Kenya the ministry of cooperative development and marketing oversees Saccos activities but this moves to the Saccos Regulatory Authority (SRA) established by the new law. Currently Saccos are newly monitored. There is no annual or frequent examination of Saccos by the regulatory body. Moreover there is no comprehensive set of standards by which Saccos should comply. It is hoped that the new Sacco regulation will establish prudential standards to govern. The standards will establish benchmarks and also enforce safe and sound principles to safe guard Saccos from losses. As financial institutions Saccos should be accountable to their members and to the public by enhancing excellence through professionalism. Both the board of directors and senior management are accountable for the internal governance of the Sacco. The general assembly is the supreme authority and the highest decision making body in Saccos. While the board has a duty to the general assembly, senior management must be accountable for implementing of policies preparation of the budget and strategic plan and achievement of predefined targets specified in the strategic plan. It’s therefore important to clearly define in writing the roles and responsibilities of the general assembly, board members and senior management. This is the essence of governance without clear definitions and understanding of separation of duties governance of Saccos may be compromised. Although policies are not a requirement in the previous act, all Saccos in Kenya are required to have by laws that define the minimum field of and requirement for membership, scope of activities and services of the Saccos and duties and responsibility of board members, different committees and operational staff in the absence of operational policies in most Saccos. Some activities such as setting of interest rates on loans and savings products have been institutionalized in the bylaws 110 billion in savings. There are currently over 2 million Kenyans who are members of one Sacco society in Kenya today. Saccos in Kenya provide opportunities to move and more people to access savings, cheap affordable credit and a chance for accessing credit through main stream financial institutions is out of reach for most people. This has posed a great challenge to the Sacco movement to provide high quality and diversified financial services which members can easily access. The introduction of front office savings account (FOSA’S) and other Sacco products have gone a long way in meeting this challenge. Currently there are 120 Saccos offering these quasi banking services (KUSCCO, 2007). The newly enacted Saccos societies act is expected to regulate the way Saccos...
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