Effects of unsecured commercial bank loans on services offered by Mombasa teacher's savings and credit cooperative society
Ng'ang'a, Peter Ndungu
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The major function of a Saving and Credit Cooperative Society is to receive contributions from members and give loans to members at competitive rates of interest. For along period Mombasa Teachers' Sacco has operated a closed-shop type of business enjoying almost monopoly power on its market niche of teachers without any competition from other financial institutions. This has made the Sacco to relax and forget to continuously advertise its product, diversify its services and improve their quality as well as innovate new products. Today, Mombasa, teachers' Sacco has been caught unaware by commercial banks that have aggressively penetrated into its business circles by introducing the unsecured loans targeting members of public including members of Mombasa teachers Sacco. Credit services offered by Mombasa Teachers' Sacco are Normal loans, Emergency loans, Top up and School fees loans. Saving services include Rack Office Saving account (B.O.S.A), Front Office Saving Account (F.O.S.A) and Withdraw able Saving Account (WSF). The study was intended to investigate the effects of unsecured loans provided by commercial banks on credit and saving services of Mombasa teachers' Sacco. To capture the real picture, the study covered two eras that is before the introduction of unsecured bank loans and after the introduction. Many studies in this area had concentrated on efforts on the shortcomings of the cooperative laws in general and the lending policies in particular in the promotion, development and operations of the Saccos and their negative effect, on the Sacco role and impact in the mobilization of savings. They had ignored the aspect of liberalization and globalization which has brought new changes which has made the financial sector more competitive. The study was motivated by rivalry and competition in' the Sacco sector which was causing ripples in the Sacco business that the electronic press and print media had described and put as, "Banks battle it out for potential customers with Sacco. The main objective was to establish whether the unsecured loans had effects on the financial services provided by Mombasa teachers' Sacco with a view of coming up with recommendations that could help the Sacco to develop strategies and policies to enable it compete effectively with commercial banks. Descriptive study design was used to carry out the study. The target population for the study was the staff of Mombasa teachers Sacco and registered members of the Sacco. Stratified sampling, purposive sampling and simple random sampling were used to select 10 Sacco staff and 160 members of Mombasa Sacco which comprised 12 percent of the target population. To obtain information from respondent both open and closed questionnaire were used in order to meet the study's objectives, both primary and secondary data were collected. Piloting was done to ensure reliability and validity of the research instruments. Data was collected, coded and analyzed using statistical package For social sciences (SPSS) version 10.0. Descriptive statistics was used to present the data in terms of frequency tables, graphs, pie charts, and percentages in order to meet the research objectives. The study established that the effects of unsecured commercial bank loan on Mombasa teachers' savings and credit services is reality and the Sacco has already suffered from the effects as evidenced by some of its members having moved to commercial banks hence affecting the Saccos annual income reflected by decline of membership and dividends. The major factor contributing to the effects was the Saccos lack of strong capital base with sufficient funds to meet the increasing demand of loans from the members due to its weak cash flows attributed to low monthly savings as majority of Sacco members 64.3% are on the lower edge of saving, that is between ksh 1000-2000 bracket and few of them (5%) are able to save over ksh3000. Lack of clear marketing strategy, which still follows traditional methods, was easily outshined by banks aggressive and door-to-door campaigns, which had enabled bank to easily penetrate and capture part of the Sacco market. Saccos have to react to changes in financial sector by competitively advertising its products to retain its market share. Traditional products and lack of new products were easily targeted and overtaken by banks demand driven and tailor made products targeting Sacco members Poor image of the Sacco due to lack of professionalism and hospitality among management and Sacco staff has led to poor rating of the Sacco, members lack confidence with management, complain of poor treatment by Sacco staff and even some Sacco members opting to leave if given a chance to join the bank where services are professionally given with a lot of hospitality. However the Sacco has adopted some strategies and policies such as partnership with Cooperative bank and was on its initial stages of computerizing its operation services. However there is need to urgently address the amendment of Sacco by-laws, and engage in market research to diversify its products. Need assessment is required to enable to identify and train the requited professional staff needed by the Sacco to cope up with competition.