What is Institutional Capital?
Institutional capital is the portion of a SACCO's capital that belongs to the institution rather than to identifiable members: retained earnings, statutory reserves and other disclosed reserves accumulated out of surplus. It is distinguished from share capital, which individual members subscribe and which is attributable to them.
A real Kenyan example
A long-established SACCO that has consistently retained a portion of surplus has institutional capital that absorbs a bad year without touching member balances.
Why it matters
Institutional capital is the part of the buffer that does not leave when members do. A SACCO whose capital is overwhelmingly member share capital is more exposed to withdrawal pressure than one that has built reserves over time.
FAQs
How is institutional capital different from core capital?
Core capital is the broader permanent capital measure, which generally includes member share capital. Institutional capital is specifically the reserves built from retained surplus, which are not attributable to individual members. Both are defined in the regulations.
Why do regulators focus on institutional capital?
Because it does not walk out of the door with departing members, which makes it the most durable part of the buffer.
How does a SACCO build institutional capital?
Principally by retaining surplus rather than distributing all of it, over a sustained period. It is slow by nature, which is why long-established SACCOs tend to be better capitalised on this measure.