Risk Management and Financial Performance of Deposit Taking Savings and Credit Co-Operative Societies in Uasin Gishu County, Kenya
Risk management framework is important for the financial stability of Deposit Taking Saccos (DTS) and other money lending institutions in Kenya. Effective risk management can decrease the probability of default and ensure financial stability in the Savings and Credit Cooperative Societies. The aggregate ratio of non-performing loans to gross loans of Deposit Taking SACCOS has increased in successive years since 2013 while there level of compliance with capital adequacy ratios as well as the Sacco societies Act, 2008 and SASRA regulations and guideline has remained low. Furthermore, most DTSs are still not able to meet their short term obligations to its members especially loan disbursement. The general objective of the study was to analyze the effect risk management practices on the financial performance of Deposit Taking SACCOs in Uasin Gishu County, Kenya. Descriptive research design was used in this study. Primary data was collected using structured questionnaire having both closed and open ended questions from employees in 7 Deposit Taking SACCOs in Uasin Gishu County. Stratified simple random sampling were used to select 35 employees from the 12 SACCOS. Secondary data was collected from journals, books, published and published research project, SASRA published audited annual reports government reports and website through internet search and in the university library. Data collected was collated, edited, and processed using SPSS version 20 and excel spreadsheet. Descriptive statistics, correlation analysis and multiple regressions were used in the data analysis. The findings of the study revealed a significant and positive relationship between predictor variables (credit management practices, liquidity risk management practices and compliance risk management practices) and financial performance .The three predictor variables had a positive coefficient indicating an increased use of credit risk management practices, liquidity risk management practice and compliance risk management practices would result into increased profitability. Credit risk management practice had greater effect on profitability given the larger coefficient of 0.772 compared to 0.468 for liquidity risk management practices and 0.214 for compliance risk management practices. The study concludes that consistent and effective management of risks in the SACCOs would improve their financial performance hence the need to select and use appropriate risk management practices while ensuring continuous review and control. The study recommends that SACCOs should ensure cost effective and timely risk identification, measurement, prioritization and mitigation measures to ensure increased financial performance. In addition the management of licensed Deposit Taking SACCOs should strategically and continuously adopt effective and efficient credit risk management practices to minimize cases of loan default so as to enhance profitability and financial performance. Besides SACCOs should aggressively mobilize members’ shares and ensure retention of earnings so as to grow their capital reserves to boost capital adequacy and meet the capital reserve requirement by SASRA. This would ensure that SACCOs have sufficient funds to meet credit obligations to clients and run the day to day operational costs. Furthermore SACCOs should strive to ensure full compliance with SACCOs Society Act 2008, SASRA regulations on capital adequacy, asset quality, earning rating, liquidity rating, risk management, board composition and quality.