The silent heist: Inside Kenya’s SACCO crisis

When Alfred Basweti’s signature appeared on KUSCCO’s 2022 financial statements, it wasn’t merely an administrative oversight — it was the perfect metaphor for a financial system haunted by phantom profits and ghostly accountability. There was just one problem: Basweti had died before the documents were finalized. A November 2024 PwC forensic audit exposed how executives inflated assets by Sh14 billion, paid fictitious dividends from member savings, and funneled Sh1.6 billion in untraceable commission

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This macabre detail emerges from the heart of what may be Kenya’s most devastating financial scandal in recent history — one that threatens the stability of a financial subsector that forms the backbone of middle-class aspirations across the country.

A Nation Built on Trust, Broken by Deceit

“Trust is the blood that sustains any financial institution,” a financial analyst shared a comment on FINTAK wall touching a heated discussion about the aftermath of the KUSCCO implosion. The Kenya Union of Savings & Credit Co-operatives Ltd — the apex organization that was supposed to safeguard the funds of 247 member SACCOs — now stands accused of misappropriating a staggering Sh12.5 billion.

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Put into perspective, that’s nearly 2% of all regulated SACCO deposits in Kenya as of December 2023. A systemic risk with very human consequences.

The forensic audit by PricewaterhouseCoopers PwC released in November 2024 reads like a financial thriller. Sh9.3 billion deliberately misstated. Sh6.5 billion in concealed internal loans. Sh1.6 billion withdrawn as “commissions” with Sh0.5 billion completely untraceable. Behind these numbers lie thousands of ordinary Kenyans who may now never recover their life savings.

Key Mechanisms of the Fraud:

• Overstated assets camouflaged Sh7 billion in unaccounted loans, while Sh9.3 billion in costs were erased from balance sheets.
• Sh206 million vanished via unexplained withdrawals labeled as “branch replenishments,” while Sh821 million flowed to Baobab Insurance—a firm linked to former KUSCCO leadership.
• KUSCCO operated without oversight for years, despite managing Sh24.8 billion from 247 SACCO

For ordinary Kenyans, this scandal isn’t just about numbers—it’s a crisis of social mobility. Teachers and civil servants, who form KUSCCO’s core membership, now face evaporating life savings. As one academic lamented: “How do I tell my students to save when I’ve lost decades of savings overnight?”

Regulatory Arbitrage: A System Designed to Fail

The crisis exposes Kenya’s fragmented oversight, where SACCOs thrive in a regulatory gray zone between SASRA, the Cooperatives Ministry, and the CBK. Unlike commercial banks, SACCOs lack a lender of last resort, deposit insurance, or stringent governance rules—a gap exploited by KUSCCO’s leadership.

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Structural Flaws:

A Pattern of Collapse

As if KUSCCO’s implosion weren’t enough, Kenya’s SACCO landscape has been hit with another devastating blow. In February 2025, the Commissioner for Co-operatives David Obonyo declared Metropolitan National Sacco technically insolvent, with an estimated Sh7 billion required for the institution to regain financial stability.

The crisis carries eerie parallels to KUSCCO. A 2022 government-ordered investigation unveiled a catalog of financial irregularities: Sh49 million in M-Pesa transactions by a single teller at the Nakuru branch; overstatement of the Sacco’s premier loan facility by Sh7 billion due to suspected phantom members; false dividend payments issued from member savings rather than surplus reserves; Sh490 million in non-performing loans irregularly issued to employees; Sh176.9 million unaccounted for across multiple branches; and Sh703 million in unexplained board expenditures from 2015 to 2022.

These aren’t isolated incidents but symptoms of a systemic disease consuming Kenya’s cooperative financial sector.

The Architecture of Deception

The three Georges — that’s what industry insiders have taken to calling the trio at the center of the KUSCCO scandal: former managing director George Ototo, finance manager George Owino, and chairman George Magutu.

According to the PwC report, these executives seized control of KUSCCO’s financial reporting process, systematically inflating incomes while slashing reported costs to create an illusion of profitability. The true financial position was hidden behind a sophisticated web of internal loans and transactions designed to confuse even seasoned financial experts.

When confronted, the response was telling. Ototo threatened legal action against journalists seeking answers. When PwC investigators attempted to interview them, they chose silence.

Domino Effects:

• Withdrawal Surge: SACCO withdrawals spiked by Sh30.8 billion in 2023 as confidence collapsed.
• Dividend Cuts: The state now mandates SACCOs to slash payouts to absorb losses, triggering backlash from members.
• Institutional Insolvency: KUSCCO’s liabilities (Sh17.7 billion) dwarf its assets (Sh5.2 billion), leaving 247 SACCOs exposed.

Cash in Hand: The Old-Fashioned Heist

Perhaps most remarkable about this thoroughly modern financial crime is how much of it relied on the oldest trick in the book: cash in hand, no questions asked.

Francis Wande, KUSCCO’s chief cashier, confessed to investigators that over seven years, he personally handed Sh135 million in cash to Ototo and Owino. The audit also uncovered Sh206 million in unverified cash withdrawals supposedly used to replenish funds at KUSCCO branches. Not a single supporting document exists for these transactions.

It’s a stark reminder that in an age of digital sophistication, sometimes the simplest methods remain the most effective for those with criminal intent.

The Pyramid Beneath the Surface

Probably, someone was running a Ponzi scheme to create an illusion of supernormal profits in a floundering economy. The pressure for SACCOs to deliver ever-higher dividends to members created a perfect environment for risk-taking and, ultimately, fraud. KUSCCO’s leadership appears to have exploited this pressure, using new deposits to pay out unsustainable returns while masking the growing hole in their balance sheet.

When the Cooperative Cabinet Secretary recently issued guidelines prohibiting SACCOs from borrowing to pay dividends, it highlighted a sector-wide vulnerability. SACCOs have been engaging in dangerous financial acrobatics just to keep members satisfied with their returns.

A Regulatory Wilderness

At Sh1 trillion in assets (compared to commercial banks’ Sh7 trillion), the SACCO sector represents a significant portion of Kenya’s financial landscape. Yet its regulatory framework remains fragmented and ineffective.

“Too many centers of power,” explains George . “Ministry, SASRA, Commissioner of Co-ops — it’s a regulatory wilderness.”

The current crisis reveals a fundamental flaw in Kenya’s cooperative governance model — one whose roots stretch back 117 years to the colonial era. What began as structures designed to control export crops like coffee and dairy never evolved into truly member-centric institutions equipped for modern financial oversight.

Historical analysis reveals that governance gaps emerged as early as 1931 when the first Co-operative Ordinance prioritized administrative control over financial oversight. This structural flaw was amplified during post-independence expansion under Sessional Paper No. 8 (1970), which emphasized quantity over governance quality in the rush to “Kenyanize” the economy.

The result is a peculiar hybrid: institutions that function as shadow banks while avoiding equivalent scrutiny. This structural hypocrisy was first flagged in the 2004 Donde Report, which warned of SACCOs’ systemic risks, yet two decades later, these warnings remain largely unheeded.

This fragmentation created the perfect conditions for KUSCCO’s leadership to exploit regulatory blind spots. While commercial banks operate under the strict oversight of the Central Bank of Kenya (CBK), SACCOs navigate a more permissive landscape.

The contrast is stark: CBK-regulated institutions must meet stringent capital requirements, undergo regular stress tests, and subject their leadership to fit-and-proper tests. Their SACCO counterparts face less rigorous scrutiny despite serving the same fundamental purpose — safeguarding people’s money.

The Human Cost of Financial Abstraction

Behind the abstract billions lies profound human suffering. A university professor confided, “I’ve been saving since I was 27 years old. In less than a year, someone has got rich with the little I put aside every year.”

The professor’s dilemma cuts to the heart of Kenya’s social contract: “How do I explain this to my students, when I’m struggling to accept this myself? I’ve been telling them that SACCOs are a way to slowly build oneself without having to steal. Now I have to tell them I was wrong.”

This crisis transcends financial losses. It’s about social mobility in a country where honest work increasingly seems disconnected from reward.

Solutions in a Broken System

The path forward requires more than just prosecuting the perpetrators, though that remains urgent and essential. Experts point to several systemic reforms:

First, consolidating regulatory authority under the CBK would bring much-needed rigor to SACCO oversight. Second, introducing minimum professional and experience requirements for SACCO leadership would elevate governance standards. Third, forcing SACCOs above certain thresholds to use CMA-licensed investment management firms and custodial banks would add crucial checks and balances.

Most urgently, the SACCO Deposit Guarantee Fund needs immediate strengthening to ensure that depositors receive at least partial protection when institutions fail.

Pathways to Redemption

1. CBK Takeover: Shift SACCO regulation from SASRA to Central Bank of Kenya, enforcing fit-and-proper tests and liquidity ratios.
2. Forensic Audits: Outsource auditing to break internal collusion—Metropolitan’s Sh176.9 million branch discrepancies went undetected for years.
3. Asset Recovery: Liquidate KUSCCO’s Sh5.2 billion remaining assets and prosecute executives—currently free on bail

Eight KUSCCO executives—including ex-MD George Ototo—were charged but released on bail, public skepticism persists. As PwC’s audit notes: “Recovery will take years, if it happens at all”

Accountability in a Broken System

The reluctance to wind up Metropolitan National Sacco despite its insolvency highlights a perverse structural obstacle: under Kenya’s Co-operative Societies Act, only the Sacco’s board has legal standing to sue or be sued on its behalf. This creates an absurd scenario where those potentially responsible for financial mismanagement are the only ones with legal authority to pursue accountability.

“It’s like asking the fox to investigate who raided the henhouse,” remarks a frustrated financial regulator who requested anonymity.

While the Cooperative Bill 2024 proposes centralized oversight, experts remain skeptical that new legislation alone will address the fundamental governance failures. The solution requires dismantling the structural hypocrisy that allows cooperatives to operate as financial institutions without corresponding scrutiny.

The Cost of Inaction

The KUSCCO and Metropolitan National scandals present a moment of reckoning for Kenya’s financial system. If left unaddressed, they risk triggering a broader crisis of confidence that could unravel decades of progress in financial inclusion.

As one financial expert puts it, “The era for ‘serikali saidia’ [government help] ended a decade ago.” Whether Kenya’s leadership recognizes the urgency of this moment remains to be seen.

For now, ordinary Kenyans wait and watch as their financial security hangs in the balance, wondering if the dead will continue signing audit reports while the living bear the consequences.

Credit:  Fintech Association of Kenya