An application by the giant Mwalimu Sacco to buy a majority stake in business magnate Naushad Merali?s Equatorial Commercial Bank (ECB) was approved yesterday.

Mwalimu Sacco has been working towards the takeover for the better part of the last two years as part of its expansion into the country?s financial sector. This is one of the many investments Mwalimu Sacco will be making,? Mwalimu Sacco?s Chief Executive Officer Robert Shibutse, told The Standard on Saturday, after it was granted the approval.

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Financial services regulators; Central Bank of Kenya (CBK), Competition Authority of Kenya (CAK) and Sacco Societies Regulatory Authority (Sasra) have all given their go ahead to the Sh1.6 billion transaction. The giant Sacco, with an estimated 60,000 members, is expected to boost the teachers? financial muscle while giving it an edge over other top cooperative societies in the country including Harambee, Stima, Kenya Police and Ukulima Saccos. Yesterday, the Sacco revealed that it had finally bought a 51 per cent majority shareholding in ECB and will nominate three of its board members to the ECB board. Shibutse added that the acquisition was an investment targeted at enhancing the society?s asset portfolio and increasing members? dividends.

The acquisition transaction had been approved and signed off by the society?s special delegates meeting held on September, 2014, the executive disclosed.

Co-operative societies

The co-operatives society industry regulator, Sasra had, late last year, cautioned co-operative societies against widening their service delivery into the commercial banking space without following due process.

Sasra Chief Executive Officer Carilus Ademba, said the acquisition of ECB by Mwalimu Sacco, is within the confines of the country?s financial regulations and we have no objections. ?Mwalimu Sacco had raised the minimum share capital of Sh1 billion required by the CBK and even surpassed it by Sh2 billion,? said Ademba. ?At the same time, Mwalimu Sacco is not transitioning into a bank, but has only invested in one which will be its subsidiary to help the Sacco in it?s investment activities.?

The nod, however, comes even after the Co-operative Alliance of Kenya, the umbrella body of more than ten million-member cooperative movement wrote to the Ministry of Industrialisation and Enterprise Development, seeking to have the transaction suspended over credibility issues.

In the Co-operative Alliance of Kenya?s earlier letter to Principal Secretary Dr Wilson Songa, dated January 21, 2015, and copied to CBK Governor Prof Njuguna Ndung?u, Sasra Chairman John Nthuku, Co-operative Alliance of Kenya Chief Executive and Managing Director Daniel Marube had said the due process had been overlooked in every stage of the proposed investment.

According to the letter, no specific annual delegates meeting approvals have been granted to authorise the multi-billion-shilling investment and they want a feasibility study done first. Marube says there was also little disclosure, promising unsubstantiated returns to members presented for delegates meeting to approve the resolution.

?The resolution lacked clarity both in terms of the investment, the sums involved, the potential risk, the projected returns and how it is to be financed,? said Marube.

Giant Sacco?s Mwalimu, Wakenya Pamoja, and Unaitas, formerly Muramati Sacco have all in the recent past expressed their intentions to widen their service provision into commercial banking.

There has, however, been apprehension over increasing the mandate of savings and credit societies into the lucrative and at the same time, risky facet of commercial banking given the fact that the societies are purely constituted of members? savings.

Handsome returns

Merali?s exit of his most prominent investment in the financial services sector, in a string of several major deals that have earned the billionaire businessman handsome returns. Most memorable was the partnership with communication French media giant Vivendi to form Kencell in 2000, Kenya?s first mobile service provider.

Three years later, when the French firm decided it was time to leave Kenya, Mr Merali used his pre-emption rights to stage one of the smartest boardroom moves. In 2004, he convinced Vivendi to sell him its 60 per cent stake in KenCell for $230 million.

An hour later, he flipped it to billionaire Mo Ibrahim?s Africa-focused Celtel for $250 million earning a sumptuous profit of $20 million. Merali is involved in the manufacture of tyres through Sameer Africa, where he holds a controlling stake.

By Frankline Sunday, The Standard

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