Kenya’s Saccos Reduce Member Payouts: First Dividend Cut in Three Years Reflects Regulatory Pressure and Capital Building Strategy

Key Highlights:

• Kenya’s savings and credit cooperative societies (saccos) reduced their average dividend rate on share capital for the first time in three years, dropping to 10.46 percent in 2024.
• The reduction reflects strategic prioritization of capital buffer building over immediate member payouts amid regulatory pressures.
• Despite percentage decreases, absolute payout amounts increased by 8.5 percent to Sh59.74 billion, demonstrating continued growth in the sector.
• Sasra chairman attributes the conservative approach to financial turbulence experienced from investment impairments in unregulated entities.

Kenya’s savings and credit cooperative societies have implemented their first reduction in dividend rates in three years, cutting the average rate of dividends on share capital to 10.46 percent for the year ending December 2024. This marks a strategic shift as saccos prioritize building stronger capital reserves over maximizing immediate returns to their members, according to fresh data released by the Sacco Societies Regulatory Authority (Sasra).

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Understanding the Dividend Rate Reduction

The mean rate of dividends on share capital dropped from the previous year’s 10.92 percent, representing the first reduction in member payouts since 2021. This decline comes during a period when saccos simultaneously reduced average interest rates on deposits from 7.45 percent to 7.14 percent. However, despite these reductions, saccos continue to maintain a significant competitive advantage over traditional banking institutions, with banks averaging only 4.14 percent returns on deposits during the same period.

The cooperative movement in Kenya has long been celebrated for offering superior returns to members compared to conventional banking channels. Even with the recent adjustments, saccos remain approximately 6.32 percent ahead of commercial banks in terms of dividends and three percent higher in interest rates on member deposits. This sustained advantage underscores the continued relevance and attractiveness of the sacco model for Kenyan savers and investors.

Growth in Absolute Terms Despite Rate Reductions

While the percentage rates decreased, an important distinction must be made regarding absolute payout figures. The total amount distributed to members actually increased substantially, growing by 8.5 percent to reach Sh59.74 billion in 2024, up from Sh55.06 billion in 2023. This apparent contradiction between declining rates and increasing absolute payouts reflects the overall growth and expansion of the sacco sector during this period.

The increase in total distributions indicates that the sacco industry continues to expand its membership base and asset portfolio, even as individual percentage returns moderate. This growth trajectory demonstrates the resilience and continued appeal of cooperative financial institutions in Kenya’s financial landscape, despite the challenges that have necessitated more conservative payout policies.

Regulatory Pressures Drive Conservative Approach

Sasra has identified increased regulatory pressure as the primary driver behind the shift toward lower dividend and interest rates. The regulatory framework governing deposit-taking saccos has evolved to emphasize institutional stability and capital adequacy, requiring these organizations to retain more of their surpluses rather than distributing maximum possible returns to members.

“The decline was largely as a result of increased regulatory pressures on regulated saccos towards retention of surpluses to build institutional capital, rather than increased payout, and indeed marks the first time in three years that the rate of dividends on members’ share capital was reducing,” Sasra stated in the Sacco Supervision Annual Report 2024.

This regulatory emphasis reflects lessons learned from financial sector challenges and the need to ensure that saccos maintain sufficient capital buffers to weather economic uncertainties. The approach mirrors international best practices in financial regulation, where capital adequacy requirements have been strengthened across various financial institutions following global financial crises.

The Sacco Landscape in Kenya

The data encompasses 177 deposit-taking saccos and 178 non-withdrawable deposit-taking saccos operating under Sasra’s regulatory oversight. These institutions collectively serve millions of Kenyan members, making the sacco movement one of the most significant components of the country’s financial sector outside traditional banking.

Saccos in Kenya have historically played a crucial role in financial inclusion, particularly among middle-income earners, civil servants, and professionals who form common bond groups. Unlike commercial banks, saccos operate on cooperative principles where members are simultaneously owners and customers, creating a unique stakeholder relationship that has traditionally translated into higher returns and more member-focused services.

The sector’s importance to Kenya’s economy cannot be overstated. Saccos mobilize substantial domestic savings, provide affordable credit facilities, and support wealth creation among their membership. They have been particularly instrumental in facilitating home ownership, education financing, and business development for middle-class Kenyans who might face challenges accessing similar services from conventional banks.

Interest Rate Environment and Central Bank Policy

The dividend and interest rate adjustments occurred against the backdrop of significant changes in Kenya’s broader monetary policy environment. During 2024, the Central Bank Rate (CBR) averaged 12.6 percent, compared to the previous year’s 10.13 percent. This represented a substantial tightening of monetary policy as the Central Bank of Kenya sought to combat inflationary pressures and stabilize the shilling.

Sasra noted a significant milestone: regulated saccos paid interest on members’ deposits at rates lower than the CBR for the first time in three years. This development indicates that saccos are becoming more aligned with the broader monetary policy environment and are adjusting their operations in response to macroeconomic conditions, rather than operating in isolation from national financial trends.

The relationship between sacco interest rates and the CBR is important for understanding the competitiveness and sustainability of the cooperative financial model. Historically, saccos have offered rates that reflect their lower operational costs and member-ownership structure. The convergence toward CBR levels suggests that saccos are increasingly subject to the same economic pressures affecting all financial institutions in Kenya.

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Building Capital Strength: The Strategic Imperative

The conservative approach to dividend and interest payments has yielded significant results in terms of capital accumulation. Capital reserves and retained earnings grew by an impressive 17.55 percent in 2024, reaching Sh197.54 billion. This growth rate represents a dramatic acceleration from the modest 6.92 percent increase recorded in 2023.

This substantial increase in retained capital serves multiple strategic purposes. First, it provides saccos with greater resilience against potential loan defaults and investment losses. Second, it creates capacity for future growth and expansion of services. Third, it ensures compliance with increasingly stringent regulatory capital requirements. Finally, it positions saccos to better compete with other financial institutions in terms of stability and credibility.

The emphasis on capital building reflects a maturation of the sacco sector in Kenya. As these institutions grow larger and more complex, the need for robust capital foundations becomes increasingly critical. This approach prioritizes long-term institutional sustainability over short-term member gratification, a sometimes difficult balance to strike in member-owned organizations where pressure for higher dividends can be intense.

Financial Turbulence and Investment Challenges

Sasra chairman Jack Ranguma provided important context for the sector’s conservative turn, noting that the past two years have been marked by financial turbulence and uncertainties. Specifically, he highlighted the impairment of financial investments that saccos had made in securities of unregulated entities, which created significant losses and underscored the need for more prudent financial management.

These investment challenges have served as a wake-up call for the sacco sector. Several high-profile cases have involved saccos suffering substantial losses from investments in entities that either failed or engaged in questionable practices. The Kuscco scandal, referenced in related reporting, represents one such case where multiple saccos faced provisions totaling Sh1.8 billion and rising.

These experiences have reinforced the importance of regulatory oversight, due diligence in investment decisions, and maintaining adequate capital reserves to absorb potential losses. The sector’s response—building capital buffers while moderating member payouts—represents a rational adaptation to these harsh lessons.

Comparative Performance: Saccos Versus Banks

Despite the moderation in rates, saccos continue to demonstrate clear competitive advantages over commercial banks in terms of member returns. The approximately 6.32 percent advantage in dividend rates and three percent edge in deposit interest rates remain substantial and meaningful to members.

This persistent advantage stems from several structural factors inherent to the cooperative model. Saccos operate with lower overhead costs than banks, maintain closer relationships with their member-customers, and are not driven by the profit maximization imperatives that characterize shareholder-owned banks. Additionally, saccos often have more focused lending strategies, concentrating on secured personal loans and mortgages that can generate stable returns.

However, the narrowing gap between sacco and bank rates may signal increasing competitive pressures. As banks invest in digital infrastructure, expand their reach through agency banking, and develop more competitive savings products, saccos must work harder to maintain their traditional advantages while simultaneously building institutional strength.

Sector Consolidation and Governance Reforms

The regulatory emphasis on capital strength and stability comes amid broader discussions about potential consolidation within the sacco sector. Recent reporting has highlighted calls for smaller saccos to consider mergers to achieve greater stability and economies of scale, alongside demands for tighter governance standards across the sector.

The sacco landscape in Kenya includes institutions of vastly different sizes and capabilities. While some large saccos operate with sophisticated systems and professional management comparable to commercial banks, many smaller cooperatives face challenges related to governance, technology adoption, and risk management. Regulatory pressure for stronger capital positions may accelerate consolidation trends, as smaller saccos recognize they cannot meet evolving standards independently.

This potential consolidation raises important questions about maintaining the diversity and accessibility that has characterized Kenya’s sacco movement. While larger, more stable institutions may better serve regulatory objectives, they may also lose some of the community connection and flexibility that makes smaller saccos attractive to specific member groups.

Member Education and Communication Challenges

The reduction in dividend rates, even as absolute payouts increase, presents communication challenges for sacco leadership. Members who have grown accustomed to steady increases in percentage returns may react negatively to the change, regardless of the sound strategic rationale behind it.

Effective member education becomes crucial in this context. Sacco leaders must clearly explain the relationship between short-term payout reductions and long-term institutional strength. Members need to understand that building capital reserves protects their savings, enables future growth, and ensures the cooperative’s ability to continue serving their needs over the long term.

This educational challenge is complicated by the democratic governance structure of saccos, where member satisfaction directly influences leadership through regular elections. Leaders who prioritize capital building over maximum payouts may face political challenges from members focused primarily on immediate returns.

Looking Ahead: Future Trends and Expectations

The shift toward prioritizing capital building over maximum member payouts likely represents a new normal for Kenya’s sacco sector rather than a temporary adjustment. As regulatory standards continue to evolve and the financial sector becomes increasingly complex, saccos will need to maintain this conservative approach while finding ways to remain competitive.

Several trends are likely to shape the sector’s future. Digital transformation will become increasingly critical, with members expecting the same convenience and accessibility from saccos that they find in commercial banks. Risk management practices will need to become more sophisticated, particularly regarding investment decisions and credit assessment. Governance standards will continue to rise, with greater scrutiny of sacco leadership and operations.

At the same time, saccos retain fundamental advantages that position them well for continued relevance. The cooperative model’s alignment of member and institutional interests creates unique value propositions. The focus on specific employment sectors or communities enables specialized service delivery. And the combination of competitive returns with social mission continues to resonate with many Kenyans.

Conclusion

The first dividend rate reduction in three years by Kenya’s saccos marks a significant inflection point for the cooperative financial sector. While the 10.46 percent average dividend rate represents a decline from previous years, it reflects a mature, strategic response to regulatory pressures, investment challenges, and the need for stronger capital foundations.

The 17.55 percent growth in capital reserves and retained earnings demonstrates that this conservative approach is achieving its intended objective of strengthening institutional capacity. Meanwhile, the 8.5 percent increase in absolute payouts shows that member interests remain central to sacco operations, even as the balance between current returns and future stability shifts.

As Kenya’s sacco sector continues to evolve, the challenge will be maintaining the delicate equilibrium between regulatory compliance, institutional strength, competitive positioning, and member satisfaction. The actions taken in 2024 suggest that sacco leadership, supported by Sasra’s regulatory framework, is committed to ensuring these important institutions remain viable and relevant in an increasingly complex financial landscape.

For the millions of Kenyans who depend on saccos for savings, credit, and wealth building, this conservative turn may require some adjustment of expectations. However, if successfully executed, the strategy promises to deliver what members ultimately need most: stable, trustworthy financial institutions that will serve them reliably for decades to come.

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By: Montel Kamau

Serrari Financial Analyst

30th September, 2025