Credit Management and Loan Portfolio Performance of Savings and Credit Cooperative Societies in Nyandarua County, Kenya
Gichuhi, Anne Wambui
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The SACCO sector globally continues to struggle with huge loan performance inefficiencies. Alarmingly, the Portfolio at Risk levels for local societies stand beyond the maximum boundaries endorsed by both the World Council of Credit Unions and the SACCO Societies Regulatory Authority. Theoretical foundations suggest that credit management has an effect on loan portfolio performance. While studies have tried to critique this state, a number of unresolved gaps still exist. The specific objectives of the study were: to determine the effect of client of client appraisal, lending policy, collections policy and loan diversification on loan portfolio performance of SACCOs in Nyandarwa County, Kenya. An explanatory research design was used. A target population of 25 Savings and Credit Cooperative Societies in Nyandarua County were studied using census approach. Questionnaires were used to collect primary data. The drop and pick method was used in administering the research instrument. Validity was assessed through expert opinion and pre-testing. Reliability test relied on the Cronbach’s Alpha reliability test. Data analysis was done by use of both descriptive and inferential analysis. Descriptive statistics, correlation analysis and multiple linear regression were used to analyze data. The p value for client appraisal (p=0.001) is less than 0.05 level of significance which informs a finding that client appraisal has a statistically significant effect on loan portfolio performance. The p value for lending policy (p=0.022), which is less than 0.05 significance level, indicates that lending policy has a statistically significant effect on loan portfolio performance. The p value for collections policy (p=0.034), which is less than 0.05 level of significance, indicates that collections policy is a statistically significant determinant of loan portfolio performance. The p value for loan diversification (p=0.007), being less than 0.05 level of significance, demonstrates that loan diversification was a statistically significant determinant of loan portfolio performance. Pearson correlation analysis results indicated that client appraisal (r=0.764, p=0.002), lending policy(r=0.513, p=0.003) and collections policy (r=0.537, p=0.014) have a strong positive and statistically significant relationship with loan portfolio performance. Nevertheless, although loan diversification (r=0.355, p=0.020) also demonstrated a positive correlation with loan portfolio performance, the results indicated that the relationship was weak. The study recommends that the SACCOs invest in technology based initiatives such as computerized loan tracking system that could turn around the way SACCOs operate their credit system and hopefully improve loan quality. The study recommends enhanced adoption of co-guarantee lending methods to help diversify risk among group borrowers. All ethical considerations were observed by the study accordingly.