simba chai savings & credit co-operative society limited

SIMBA CHAI SAVINGS & CREDIT CO-OPERATIVE SOCIETY LIMITED

INVESTMENT POLICY

©2011

THE KENYA UNION OF SAVINGS & CREDIT COOPERATIVE LIMITED

CONSULTANCY & COMPILIANCE DEPARTMENT

P O BOX 28403

NAIROBI

SIMBA CHAI SACCO SOCIETY LIMITED

INVESTMENT POLICY i

TABLE OF CONTENTS

TABLE OF CONTENTS ............................................................................................................................... I

1.0 CITATION .................................................................................................................................................. 1

2.0 SACCO PROFILE ........................................................................................................................................ 1

3.0 INTRODUCTION ........................................................................................................................................ 3

3.1 STATEMENT OF PURPOSE .................................................................................................................... 3 3.2 STANDARDS OF CARE ........................................................................................................................... 3

3.2.1 PRUDENCE .................................................................................................................................... 3 3.2.2 ETHICS AND CONFLICTS OF INTEREST .......................................................................................... 3

4.0 SCOPE AND PURPOSE OF INVESTMENT POLICY STATEMENT ....................................................... 5

5.0 RESPONSIBILITIES ............................................................................................................................ 6

5.1 RESPONSIBILITIES OF THE BOARD ........................................................................................................ 6 5.2 RESPONSIBILITIES OF THE MANAGEMENT ...................................................................................................... 6 5.3 DELEGATION OF AUTHORITY............................................................................................................... 7

6.0 INVESTMENT CRITERIA .................................................................................................................... 7

6.1 OBJECTIVES .................................................................................................................................... 7 6.2 SAFETY .................................................................................................................................................. 8

6.2.1 CREDIT RISK .................................................................................................................................. 9 6.2.2 INTEREST RATE RISK ..................................................................................................................... 9

6.3 LIQUIDITY ............................................................................................................................................. 9 6.4 YIELD ...................................................................................................................................................10 6.5 INVESTMENT CONSTRAINTS ....................................................................................................10

7.0 INVESTMENT STRATEGY .........................................................................................................................11

7.1 ASSET ALLOCATION OF FOSA SAVINGS AND SURPLUS FUNDS NOT LENT TO

MEMBERS..............................................................................................................................................11 7.2 FINANCIAL STRUCTURE.............................................................................................................12 7.3 QUALITY OF THE ASSETS AND PROTECTION AGAINST VALUE EROSION .................13 7.4 RETURNS ON INVESTMENT .......................................................................................................14

8.0 GROWTH STRATEGY .......................................................................................................................15

9.0 PERFORMANCE BENCHMARKS ....................................................................................................15

10.0 INVESTMENT PARAMETERS ..................................................................................................................16

10.1 DIVERSIFICATION ..............................................................................................................................16 10.2 MAXIMUM MATURITIES ...................................................................................................................17

11.0 REPORTING STANDARDS ......................................................................................................................17

11.1 METHODS ..........................................................................................................................................17 11.2 PERFORMANCE STANDARDS .............................................................................................................18

12.0 AUTHORITY FOR INVESTMENT DECISIONS ..........................................................................................18

12.1 ANNUAL GENERAL MEETING .............................................................................................................18 12.2 BOARD ...............................................................................................................................................18 12.3 FINANCE & ADMINISTRATION COMMITTEE ......................................................................................18 12.4 CEO ....................................................................................................................................................18

13.0 CONTROLS .........................................................................................................................................19


INVESTMENT POLICY ii

14.0 INVESTMENT POLICY REVIEW ..................................................................................................19

15.0 ADOPTION OF THE POLICY....................................................................................................................20


INVESTMENT POLICY 1

1.0 CITATION

This policy shall be called the ‘investments policy’ of Simba chai Sacco Society Ltd, herein after referred to as ‘the Society’.

2.0 SACCO PROFILE

Vision:

Simba chai Sacco ltd shall be the most respected, efficient Sacco providing world class customer service, delivering high and consistent Return on Investment anchored on good governance.

The Board of Simba chai SACCO Society Ltd, recognizing that it is solely responsible for supervision of the Society’s investment activities, adopts this policy for governing investment operations. The Society prefers to keep its operations within the confines of funds obtained from its internal source and savings mobilized from its members and only engage in external borrowing when the net returns from the borrowed funds exceed the associated costs or it is demonstrably unavoidable. A moderate balanced investment policy based on the society’s moderate risk profile is therefore upheld. The Society’s fund shall be diversified in such classes of Assets as bank deposits, government securities, stocks, corporate debt, real estate, offshore investments and any others the Board may deem viable to the extent allowed by the law and the society’s by laws to ensure optimum utilization of the funds in the achievement of the society’s Vision and Mission. Formation/History: Simba Chai Sacco was established on 17th May 1977 by the the Accounts personnel who came together and saw the need for the formation of the society and hence the coining of the name Hesabu. During that year it had only 35 members. Some of the founder officials were; F.W. Wanganju Leonard Rutto P. Anzimbu In 2008 the Delegates passed a resolution for the name to be changed from Hesabu to Simba Chai Sacco Limited.

Membership The Society draws its membership from the Unilever Kenya Limited. Initially, the

membership was restricted to only senior managers of the Unilever limited. This has


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since changed and union staff is allowed to join the Society. An analysis of the

membership growth since the year 2004 is as shown below.

Year Membership Growth rate

2009 3873

2008 3174

2007 3,942 23%

2006 3,201 18%

2005 2,707 15%

2004 2,353

From the analysis above, membership has gradually grown from 2,353 in the year 2004

to 3,873 in the year 2009.This represents an average growth of 19% annually.

It has been observed that membership has grown since the establishment of a Front

Office Service Activity out let in the year 2009.


INVESTMENT POLICY 3

3.0 INTRODUCTION

3.1 STATEMENT OF PURPOSE

Financial prudence dictates that Simba chai Sacco shall not tie up all its resources in one type of asset. Changes in economic conditions could result in a particular type of asset deteriorating in value. Inflation could also result in the deterioration of the value of that particular asset, a decline in the market for that asset or difficulties being experienced in a particular area of investment. Diversification of the investment portfolio shall therefore help to cushion any negative effects in any one area. As a general guide therefore, Simba chai SACCO Society shall strive to maintain an asset mix of: 70 – 80% Loans

10 - 20% Investments 5 – 7% Fixed Assets 1% Other Assets

The general guide as indicated above is intended to ensure and place the members’ needs above any envisaged investment destination.

3.2 STANDARDS OF CARE

3.2.1 PRUDENCE The standard of prudence to be used by investment officials shall be the “prudent person” standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and this investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security’s credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and the liquidity and the sale of securities are carried out in accordance with the terms of this policy.

The ‘prudent person” standard states that, “Investments shall be made with judgment and care, under circumstances prevailing then, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived.”

3.2.2 ETHICS AND CONFLICTS OF INTEREST The Board and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the


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investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the SACCO.


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4.0 SCOPE AND PURPOSE OF INVESTMENT POLICY STATEMENT The Board shall ensure that this policy statement complies at all times with the provisions of the Cooperative Societies Act, the Rules, Society by-laws and any other laws or regulations competently passed and or recognized in Kenya. The purpose of this policy is to provide an operating guidance for the administration of the Society’s investment portfolio in order to maintain a high-quality, low-risk portfolio, complying with the intent of applicable laws and regulations. The major objectives of the policy are to minimize risks from interest rate changes or other factors, to optimize the yield on surplus funds, and to ensure that the types and maturity mix of investments purchased and held are sufficiently diversified to provide adequate liquidity to meet future needs. The board shall review this policy as frequently as may be necessary but not less frequently that once every year and record its review in the minutes of the board meeting to ensure that the policy continues to meet the goals and objectives of the society. The policy specifically attempts to:-

i) Define and assign responsibilities of all parties involved in investment decision process

ii) Establish a clear understanding by all the parties of the investment goals and objectives of the Society assets.

iii) Offer guidance and limitations regarding the investment of the society’s assets

iv) Establish the performance benchmarks for evaluating investment results. v) Asses whether the society’s assets are managed in accordance with the law,

rules and Society by-laws in line with prudent standards and best practices that comply with the International Financial Reporting standards (IFRS)


INVESTMENT POLICY 6

5.0 RESPONSIBILITIES 5.1 Responsibilities of the Board

The Society’s Board shall have a fiduciary responsibility for directing and monitoring the investment management of the Society’s assets.

It is responsible for the management of the Society’s assets. The Board shall discharge its duties solely in the interest of the society and in line with the law, by-laws and regulations. The specific responsibilities of the Board in respect of this policy include:-

i) Always acting in the best interests of the society, exercising good corporate governance and enhancing shareholder/member’s value

ii) Determining the society’s risk tolerance and investment horizon, and communicating these to the relevant parties.

iii) Establishing reasonable and consistent (complete)

5.2 Responsibilities of the Management The society’s Management is responsible to the Board The Management’s responsibilities include:

i) Projecting the Society’s financial needs and communicating such needs to the Board

ii) Implementation of investment decisions reached by the Board iii) Accounting for Investment activities including maintaining the books of account. iv) Co-ordination of Society’s investment meetings including those by the Board v) Ensuring compliance with laws and regulations, including such regulations as

may be issued by the Ministry of Cooperative Development and marketing or any other relevant authority from time to time.

vi) Facilitation and liaison with service providers including Investment advisors, Auditors, Advocates, Valuers, Bankers and any others.

vii) Recommend to the Board any viable investment opportunities in line with the prevailing economic trends.

viii) Monitoring and reporting to the Board the progress of investment activities on regular basis.

ix) Provision of advice to the board for the purposes of establishing and reviewing the investment policy.

x) Provision of overall investment advice to the board on the suitability and risk /return characteristics of asset classes available to the Society and any legal limitations as may be applicable.


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xi) Recommendation to the board on the purchase, sale or holding of individual securities and alteration of any asset allocation within the guidelines established in this policy.

xii) Communicating significant changes in factors, which may affect the attainment of the Society’s investment objectives.

xiii) The management shall physically maintain possession of securities/title documents in respect of assets owned by the Society, collect dividends and interest payments, and redeem maturing securities, and effect receipt and delivery following purchases and sales of assets.

5.3 DELEGATION OF AUTHORITY Authority to manage the investment program is granted to the CEO, hereinafter referred to as Investment Officer. Responsibility for the operation of the investment program is hereby delegated to the investment officer, who shall act in accordance with established written procedures and internal controls for the operation of the investment program consistent with this investment policy. 6.0 INVESTMENT CRITERIA 6.1 OBJECTIVES The primary objectives of Simba chai SACCO Investment activities shall be:

i) Maintenance of the Society’s Principal activity The society’s principal activity is to receive savings from and give loans to its members. Priority of the Society’s funds shall therefore be placed on lending (investing in loans) to its members. a) Where the society is in the process of building a fund for a specific purpose

(say, for payment of annual dividend and interest or purchase of an asset at a specific time) and lending to members would make immediate liquidation of the investment impossible or impractical.

b) Where the Society’s members who qualify for loans are fully satisfied or c) In any other circumstances that the board deems to deserve priority over

lending to the Society’s members. These circumstances shall be recorded in the minute book of the board.

ii) Preservation of core Capital The Society’s investments shall be undertaken in a manner that seeks to ensure preservation of the society’s core capital.

iii) Long-term Growth of core Capital

Any investments shall emphasize long-term growth of principal while avoiding excessive risk. Short-term volatility shall be tolerated in as much as it is consistent with the volatility of a comparable market index.


INVESTMENT POLICY 8

iv) Return on Investment

The investment portfolio shall be designed with the objective of attaining a market rate of return on its investments consistent with the constraints imposed by its safety objective and cash flow considerations. In addition, the Society seeks to generate a total annualized rate of return above the underlying Kenyan inflation rate over rolling three –year periods as published by Central Bank of Kenya from time to time.

v) Liquidity

The Society shall remain sufficiently liquid to enable it meet its cash flow requirements. The Directors/Management shall endeavour to project/foresee significant anticipated changes in cash flow needs, to allow sufficient time to build up necessary liquid reserves in order to avoid expensive borrowing, forced sale of securities and/or investments to meet required payments OR accumulation of idle cash to the detriment of profitability. In particular a) The Society shall maintain short-term liquid investments to respond to

withdrawals and disbursement need without sacrificing resources into non-earning accounts that shall impact negatively on profitability and rates of return.

b) The non-earning cash shall be minimized to daily operational needs. c) As much funds as the projected needs dictate shall be invested in a very

liquid assets.

vi) Risk Aversion The Society tolerance for risk in managing its assets is viewed as moderate. Given the Society’s funding, a short medium-term view is taken in establishing the risk-return posture. Therefore the directors shall avoid violent volatility in an asset’s performance.

vii) Diversification of Assets

The investment portfolio may be diversified in order to minimize the risk of large losses, expect where circumstances make it clearly prudent not to do so.

In general therefore, the investment portfolio of Simba chai SACCO Society should meet the following criteria:

i. Safety ii. Liquidity

iii. Yield

6.2 SAFETY

Any investment to be made by the society shall minimize possibility of any loss to the members. Every investment decision shall be made bearing in mind that the SACCO is


INVESTMENT POLICY 9

the custodian of its member’s funds and, as such, Management should ensure that all investments are safe. The management of the Society must ensure that it has enough funds invested in assets that can be easily converted into cash to meet its needs and the demands of members on a timely basis. In all society’s investments, serious risk analysis must be done. In theory, the more risky the investment, the higher may be the potential return. But, sometimes the nature of the risk does not compensate for the return; therefore serious consideration must always be given as to whether or not the risk is worth taking. Safety of the principal amount invested shall be the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in overall portfolio. The objective shall be to mitigate credit risk and interest rate risk. 6.2.1 CREDIT RISK The SACCO shall minimize credit risk, which is the risk of loss due to the failure of the security issuer or backer, by:

Limiting investments to the types of securities listed in Section 5 of this Investment Policy.

Diversifying the investment portfolio so that the impact of potential losses from any one type of security or from any one individual issuer shall be minimized.

6.2.2 INTEREST RATE RISK The SACCO shall minimize interest rate risk, which is the risk that the market value of securities in the portfolio shall fall due to changes in the market rates, by:

Structuring the Investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity.

Investing operating funds primarily in short-term securities, money market mutual funds, or similar investment pools and limiting the average maturity of the portfolio in accordance with this policy (see section 6).

6.3 LIQUIDITY

The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets. Alternatively, a portion of the portfolio may be placed in money market mutual funds which offer same-day liquidity for short-term funds.


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6.4 YIELD

The Investment Portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. The core of investments is limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities shall generally be held until maturity with the following expectations:

A security with declining credit may be sold early to minimize loss of principal.

A security swap would improve the quality, yield, or target duration in the portfolio.

Liquidity needs of the portfolio require that the security be sold.

6.5 INVESTMENT CONSTRAINTS

i) Time horizon Since the Society’s principal activity primarily is to accept deposits from and lend loans to its members on pre-set terms; any extra liquidity may only be managed through a short to medium-term horizon.

ii) Regulatory and Legal Considerations

Where there are rules, regulations or legal stipulations enacted in Kenya and affecting the operation of this policy, the minimum or maximum set by the said law, rules or regulations shall, at least form, the lower or upper limit whichever is applicable in application of this policy.

iii) Taxation

Taxes shall be paid one day before their due dates, provided that where the due date falls on a weekend or gazette public holiday, the tax shall be paid on the previous working day.

iv) Unique circumstances In the event of any unique circumstances arising, such circumstances shall be brought to the attention of the board at its next regular meeting. The Boards’ decision as to nature and resolution of the matter shall be final and recorded in the board’s minute book.



7.0 INVESTMENT STRATEGY

Simba chai Sacco Society shall adhere to the strategy of matching the amounts, maturities and interest rates, of sources and uses of funds to the extent feasible. Specifically, investment maturities shall be dictated by the stability of the source of funds. Safety of the principal and interest shall be the primary consideration in all investment decisions.

7.1 ASSET ALLOCATION OF FOSA SAVINGS AND SURPLUS FUNDS NOT LENT TO MEMBERS

Asset Class Strategic weight (%)

Tolerance Limit (% of Portfolio)

Cash & Demand Deposits 10% 0 – 30%

Fixed Deposits & Time Deposits 40% 10 – 90%

Quoted Stocks 5% 0 – 10 %

Unquoted Stocks 0.5% 0 – 5%

Property (Real estate) 5% 0 – 15%

Commercial Paper, corporate bonds, Mortgage Bonds & Loan stock

5% 0 - 30%

Kenya Government Securities 30% 0 – 70%

Offshore Investments 0.5% 0 – 5%

Unit Trusts 0.5% 0 – 5%

Any other assets 3.5% 0 – 5%

The society’s management shall comply with the above asset allocation, which may only be modified by the Directors in writing, or adjusted to bring the portfolio of investments into compliance with statutory guidelines in force for the time being.



7.2 FINANCIAL STRUCTURE The Society shall adopt a financial structure that seeks to maximize returns on productive assets while providing members with credit services. The structure shall focus on sources of funds (savings, deposits, shares, institutional capital) and the uses of funds (loans, liquid investments, financial investments, and fixed assets). In particular:

a) Assets financed by members’ savings and deposits should generate sufficient income to pay market interest rates on savings; cover operating costs and maintain capital adequacy.

b) Fixed assets, product and service expansion (research and development), and high cost of information technology should be financed from the institutional capital.

c) The Society aims to achieve the following ratios:

Ratio Strategic mix (%)

Tolerance Limit (%)

Legal, limit Maximum or minimum

Net Loans/Total assets 80% 70 – 90% ≥70%

Financial Investments/Total Assets

5% 0 – 10% ≤10%

Savings/Total assets 80% 70 – 90% ≥70%

Borrowings/Total Assets 2% 0 – 5% ≤7%

Institutional Capital/RWA 8% 8 – 10% Maintain >8%

Institutional Capital/Savings Liabilities

8% 8 – 10% Maintain >8%

Non-earning Assets/Total Assets

3% 1 – 4% ≤5%

Zero Cost Funds/Non earning Assets

100% 100 – 110% >100%

Total Capital/TRWA Maintain >10%

Liquid Assets/(Savings + Borrowings)

20% 10 – 40% ≥10%



Non-earning Liquid Assets/Total Assets

2% 1 – 3% ≤3%

NVA/(Total Shares + Deposits) 110% ≥108%

7.3 QUALITY OF THE ASSETS AND PROTECTION AGAINST VALUE EROSION It is the policy of the Society to acquire and maintain the highest quality of assets possible. In this regard,

a) Loan delinquencies shall be keenly monitored, measured and kept at the minimum.

b) Non-earning assets shall be kept low and shall under no circumstances be financed from members’ savings, deposits, or borrowed funds.

c) Sources of funds that have a financial cost shall be invested in productive assets, earning a return greater than the cost of the funds.

The following under listed ratios shall be observed by the Sacco:


Tolerance Limit (%)


Total loan delinquency in excess of 30 days/Gross loan portfolio

5% 0 – 10% ≤10%

Non-earning Assets/Total Assets 3% 1 – 4% ≤5%

Zero Cost funds/Nonearning assets

100% 100 – 110% >100%

Net provision for loan Loss Delinquency (up to 12m)

a) Performing loans (well documented as per contract)

b) Loans classified as watch – normally good account but exhibit some weaknesses.

c) Loan classified as substandard.

d) Loan classified as doubtful.

1% 25% 50% 75%

0 – 1% 20 – 25% 50 – 70% 75 – 85%

1% 25% 50% 75%

Provision for loan loss/delinquent 100% 100% 100%



loans in excess of 12months

Annual loan write off/Delinquent loans in excess of 12months

3.5% 2 – 5% 2%

Interest on savings/total savings 0.5%above market rate

Not fall below market rate

>market rate

Total operating expenses/total income

20% 5 – 35% ≤35%

7.4 RETURNS ON INVESTMENT The society aims at maximizing the yields on any class of assets while minimizing costs associated thereto. All factors held constant, the society shall prefer investment in assets with higher net returns to lower and as such the society shall endeavor to:

a) Pay real rates of return in form of dividends and interest rebates. b) Charge rates on loans that cover all associated costs. c) Invest in quality employees and pay competitive remuneration to them. d) Achieve the following ratios:


Tolerance Limit (%)


Net loan income/total loans 10% Min 8% ≥8%

Financial Investment Income/Total Financial Investments (TFI)

0.5% above market

Min – market rate

≥market rate

Interest on savings/total savings 0.5% above market rate

Min – market rate

≥market rate

Dividends/Share capital Above 6% Not below 5% ≥5%

Total Operating expenses/total income 20% 5 – 35% ≤35%



8.0 GROWTH STRATEGY In order to attain and sustain growth, the society shall focus only on relevant, satisfactory and appropriate products and services to its members/customers. The society shall constantly monitor its growth and specifically endeavour to achieve and maintain the following growth indicators:

Ratio Strategic mix (%) Legal, limit Maximum or minimum

Growth in net loans 6% Minimum 5%

Growth in liquid investments 6% Minimum 5%

Growth in savings 8% Minimum 7%

Growth in institutional capital 8% Minimum 8%

Growth in membership 6% Minimum 5%

Growth in total assets 0.5% above inflation rate

>inflation rate

9.0 PERFORMANCE BENCHMARKS The set performance benchmarks and assets ranges for the society, where applicable, shall be evaluated by the Directors on an ongoing basis to ensure that they continue to display the features for which they were originally selected. The Directors shall only change the benchmarks if some significant shift in behavior takes place such as:

i) Changes in legislation ii) The benchmarks are no longer considered relevant or iii) The introduction of a more industry accepted benchmark

The society shall aim at meeting or exceeding the performance benchmarks relevant to the Society’s investments and to exceed composite asset class target returns weighted in accordance with the policy asset mix over rolling three-year period. The society shall aim to achieve the following:

i) Meet or exceed the performance benchmarks relevant to the Society’s investments.

ii) Exceed composite asset class target returns weighted in accordance with the policy asset mix.

iii) Achieve a real rate of return (in excess of underlying inflation as published by the Central Bank of Kenya) of 45 per annum over rolling three-year periods.



The following benchmark indices shall be used to assess and evaluate the overall performance of the following asset classes:

Asset class Benchmark

Loans to members Market rate of return on commercial loans

NSE Quoted Equities NSE 20 Share Index

Kenya Government Securities Corporate Bonds & Commercial paper

Composite of weighted average market yield of fixed rate Treasury bonds and average 91-day Treasury bill rate over evaluation period

Cash, demand, Fixed and Time Deposits Average call of fixed deposit rate over the evaluation period for Kenya Commercial bank. Barclays Bank of Kenya, Standard chartered Bank of Kenya and Citibank NA, for the same period

Euro, Sterling Pound and US Dollar denominated fixed income assets

Equivalent LIBOR rate plus 0.5%

Global Equities and Bonds Composite of Morgan Stanley Capital International (MSCI) World Index and Citigroup Government Bond Index

10.0 INVESTMENT PARAMETERS

10.1 DIVERSIFICATION

The investments shall be diversified by;

Limiting investments to avoid over concentration in securities from a specific issuer or business sector (Excluding Treasury bills),

Limiting investment securities that have higher credit risks,

Investing in securities with varying maturities, and continuously investing a portion of the portfolio in readily available funds such as Money Market Funds to ensure that the appropriate liquidity is maintained in order to meet ongoing obligations.

The following diversification limitations shall be imposed on the portfolio:

Maturity: No more than 50 percent of the portfolio may be invested beyond 12 months, and the weighted average maturity of the portfolio shall never exceed one year.



a) Default risk: No more than 20 percent of the overall portfolio may be invested in the securities of a single issuer, except for securities of the Treasury Bills/bonds.

Liquidity risk: At least 20 percent of the portfolio shall be invested in overnight instruments or in marketable securities which can be sold to raise cash in one day’s notice.

10.2 MAXIMUM MATURITIES

To the extent possible, the Simba chai Sacco shall attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the Simba chai Sacco shall not directly invest in securities maturing more than five (5) years from the date of purchase. The Simba chai Sacco shall adopt weighted average maturity limitations (which often range from 90 days to 3 years), consistent with the investment objectives; Reserve funds and other funds with longer-term investment horizons may be invested in securities exceeding five (5) years if the maturities of such investments are made to coincide as nearly as practicable with the expected use of funds.

Because of inherent difficulties in accurately forecasting cash flow requirements, a portion of the portfolio should be continuously invested in available funds such as, money market funds, to ensure that appropriate liquidity is maintained to meet ongoing obligations.

11.0 REPORTING STANDARDS

11.1 METHODS

The investment officer shall prepare an investment report at least quarterly [or monthly], including a management summary that provides an analysis of the status of the current investment portfolio and the individual transactions executed over the last quarter [or month]. This management summary shall be prepared in a manner which shall allow the SACCO to ascertain whether investment activities during the reporting period have conformed to the investment policy. The report should be provided to the investment sub- committee and the Management Committee. The report shall include the following:

Listing of individual securities held at the end of the reporting period.

Realized and unrealized gains or losses resulting from appreciation or depreciation by listing the cost and market value of securities over one-year duration that are not intended to be held until maturity.

Average weighted yield to maturity of portfolio on investments as compared to applicable benchmarks.

Listing of investments by maturity date.

Percentage of the total portfolio which each type of investment represents.



11.2 PERFORMANCE STANDARDS

The investment portfolio shall be managed in accordance with the parameters specified within this policy. The portfolio should obtain a market average rate of return during a market/economic environment of stable interest rates. A series of appropriate benchmarks shall be established against which portfolio performance shall be compared on a regular basis. The benchmarks shall be reflective of the actual securities being purchased and risks undertaken and the benchmarks shall have a similar weighted average maturity as the portfolio.

12.0 AUTHORITY FOR INVESTMENT DECISIONS

12.1 ANNUAL GENERAL MEETING

The annual delegates meeting shall have the sole responsibility of approving all major society’s investments outside the core business by a special resolution.

12.2 BOARD

The Board shall have delegated responsibility to authorize society’s investments upon approval. It shall be responsible for making policy changes on investments upon recommendations from the Finance & Administration committee. It shall be responsible to ratify investments made on the authority of the Finance & Administration committee.

12.3 FINANCE & ADMINISTRATION COMMITTEE

The Finance & Administration -committee is responsible for making recommendations to the Board on the overall investments policy of the society. Its other functions shall be as outlined in the Society’s by-laws. More so, the committee shall:

i. Decide on in the investment in all stocks/shares and bonds within the guidelines laid down in the policy.

ii. Decide on any shift in the institutional allocation of the portfolio or the type of investment.

iii. Monitor, on a monthly basis, the portfolio and the procedure used to decide on where to invest.

12.4 CEO

The CEO shall have the responsibility for the day-to-day management of the investment portfolio of the society, within the guidelines laid The CEO’s responsibility shall be to:

i. Ensure that all transactions are properly accounted for. ii. Keep an up to date listing of all short term investments, including:

a) Date of investment and maturity date.



b) Institutions invested in. c) Amount of the investment. d) Monthly earning on each investment.

iii. Ensure that all earnings are properly brought to account. iv. Ensure that funds are invested only in the approved list of financial

institutions. v. Consult with the investment sub-committee for the placement of

investments. vi. Recommend to the investment committee new institutions in which the

society can place investments.

13.0 CONTROLS A written confirmation of each investment purchase or sale against the Society’s investment account records shall be made by an employee with neither authority to place investments nor responsibility for investment transactions. The confirmation shall be held permanently with the required documentation originating or booking the investments.

14.0 INVESTMENT POLICY REVIEW In order to ensure continued relevance of this Investment Policy, the Board shall review these policies at least once every year. The Board may review the investment policies within a shorter period in response to any material change to the investment markets, regulatory regime, any aspects of the Society, its liabilities and attitude to risk which may have a significant bearing on the existing policy.



15.0 ADOPTION OF THE POLICY

We, the undersigned, individually and collectively, give commitment to the implementation of the Investment Policy by appending our signatures Board of Directors

No. Name Position Signature

1

2

3

4

5

6

7

8

9

Supervisory committee members

Name Position Signature

1

2

3

WITNESSED BY …………………………………………………………………………

CEO

simba chai savings & credit co-operative society limited

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