Will The Suspension Of Mwalimu Sacco CEO and Chair Rescue The Collapsing Sacco From its Fate?

Will The Suspension Of Mwalimu Sacco CEO and Chair Rescue The Collapsing Sacco From its Fate?

The CEO of Mwalimu National Sacco – Kenya’s largest deposit-taking sacco, has been suspended after an investigation into alleged fraud was launched by the Sacco Societies Regulatory Authority (SASRA).

SASRA’s Anti-Fraud Unit suspended CEO Alphonse Kaio and Board Chair Wellington Otiende. The suspension comes amid a Parliamentary probe into the controversial acquisition of cash-strapped Spire Bank in 2020 by the sacco from tycoon Naushad Merali.

The big question has been whether the sacco’s shareholders, who are teachers, got value for money in the deal worth over Ksh3 billion ($28 million). The investment decision has been questioned – with the Senate Committee on Finance and Budget calling for the tabling of due diligence reports for the transaction from CBK, financial advisors Ernst & Young and the lawyers who drafted the agreement for the transaction.

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Spire Bank, which hasn’t generated a profit in six years, breached the Central Bank of Kenya (CBK) requirements in 2020 with its core capital at -2.6 billion shillings against the prescribed Ksh1 billion.

Mwalimu Sacco bosses had blamed the poor performance on Naushad Merali’s withdrawal of all of his deposits amounting to Ksh1.7 billion ($15.74 million) immediately after selling his shares in Spire Bank. The sacco noted that it was searching for a strategic investor.

“It is a surprise that all of a sudden after Mr Merali has sold his shares we have a situation where as a bank you are looking for a strategic partner. Does it mean that the due diligence was never done properly before Mwalimu Sacco got into this mess? Because it looks like a mess,” posed Senator Kibiru, the committee’s chairman.

Data from December 2020 further revealed that borrowers have defaulted a record 90.65 percent of Spire Bank loan book – exposing the dire situation.

Suspended board chair Otiende stated that Merali’s withdrawal triggered fears in the banking sector, citing the collapse of similar, relatively small lenders such as Imperial Bank and Chase Bank.

“One thing as an investor representing Mwalimu National Sacco, which we are aware of, is that when Mr Merali was still part of the bank he had huge deposits there which he later on withdrew in 2016 to the tune of Ksh1.7 billion ($15.74 million) and coupled with what happened at Imperial Bank and Chase Bank there was some sort of panic and there were also withdrawals by the customers so I think this weakened the financial base of the bank,” he maintained.

The sacco has over 85,000 members and an asset base of Ksh52.3 billion, with deposits in excess of Ksh32 billion.

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