Factors influencing the effectiveness of guarantorship in loan recovery: the case of Mwalimu Sacco Society Ltd
Mutura, James K.
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There are about 4,200 sacco societies in Kenya which by December 2005, had mobilized Kshs.105 billion representing 31 percent of the country's savings. Mwalimu Sacco society Ltd is situated in Nairobi and established in 1974 is one of the largest SACCO societies in the country. Its objective is to mobilize savings and grant loans to members. By December 2005, Mwalimu Sacco society Itd had mobilized Kshs.6.7 billion, which is equivalent to 6.3percent of all Sacco savings in the country. By then the outstanding loans stood at Kshs.6.04 billion out of which about kshs 35 million was deliquent. The securities for the loans are loanees expected future income and guarantors. Granted, that Sacco societies mobilize large amounts of savings and consequently give huge loans on the premise that the latter will be paid promptly, a mechanism of compelling loanees to pay such loans from other sources of income in absence of employment income is lacking. Further the retirement benefits authority (RBA) prohibits the use of a loa nee's pension in clearing the loan liability. Given the magnitude of funds lent out, there is need to examine factors that influence the effectiveness of guarantorship in loan repayment. An exploratory study approach was adopted. It involved focus group interviews, review of relevant literature and discussions with experts in the field of cov operative management. The study used combination of stratified random sampling and purposive sampling to obtain a sample of 200 guarantors who were been attached for defaulted loans at Mwalimu Sacco Society in 2005. Questionnaires were used to collect data from the attached guarantors. Secondary data from the Sacco was used to identify loan defaulters and their respective guarantors. Data acquired was analyzed through mean mode and standard deviation in addition to analysis of variance (ANOVA). A Pearsons correlation coefficient analysis was carried out to determine multicolinearity amongst the independent variables. Analyzed data is presented through the use of bar graphs, pie charts and tables. Findings from the study revealed that females are more prompt in loan repayment than males. The patriarchal nature of the Kenyan society emerged as a major reason for this phenomenon. Age and gender were found to have an impact on loan repayment. As members grew old they become more inclined to repaying the loans than the young with females being more reliable in loan repayment. It also emerged that members' other sources of income and increased salaries could hardly be traced to the Society in form of increased savings and accelerated loan repayment. Contrary to commonly held view that peer pressure encourages loan repayment, the researcher found that peer pressure has no role in repayment of defaulted loans. The government policy and regulations were also found to have a minimal role in loan repayment. Findings from the study revealed that as members income threshold increases, their monthly savings with the Sacco do not increase correspondingly. Loss of employment income was found to be the single most important reason for nonrepayment of Sacco loans.