Corporate Governance Practices and Performance of Deposit Taking Savings and Credit Cooperative Societies in Nairobi City County, Kenya

Abstract

In Kenya, the deposit taking savings and credit societies segment of the Kenyan SACCO subsector is vital for the growth of the developing economy in playing a distinct and important role of providing financial services. However, DTSs’ performance has been dwindling with members seeking financial services from SACCOS in Kenya declining from 13.5% in the year 2009 to 9.1% in the year 2015. Most of them are providing for potential bad loans in their books of accounts raising questions over their fitness in the key credit market. Despite the contribution to the economy, DTSs continue to experience huge losses with others even collapsing questioning the measures put in place in ensuring continued performance. This study therefore, aimed at determining the effect of corporate governance practices on performance of deposit taking Saccos in Kenya. The specific objectives of this study were to establish the effect of board independence, board size, board diversity and board composition on performance of deposit taking Saccos in Nairobi City County, Kenya. Descriptive cross-sectional survey was adopted by the study. The target population comprised of 35 licensed deposit taking Saccos in Nairobi County which formed the studies unit of analysis while the unit of observation was 105 staff members at the managerial level in the Saccos. Semi-structured questionnaires were utilized in obtaining primary data. Descriptive statistics were used to provide summary measures of data observed and these included frequencies, percentages, mean and standard deviation. Inferential statistics was conducted using correlation and multiple regression analysis. The findings on the correlation analysis showed that all variables had positive linear correlation. On the overall corporate governance measures’ effect on performance, the regression analysis reported that the independent variables have a strong positive relationship on DTSs’ performance. The model coefficients further revealed the performance was significantly influenced by all the variables. It implied that these variables’ unit increase would result in a proportional change in the performance. The study therefore concludes that maintenance of a well-functioning, balanced and diverse board is a main determinant of organizational performance. Organizations having effective boards will thus tend to outperform those having challenges in their corporate governance. The study recommends that the firms should ensure that their corporate boards are carefully select so as to meet the specifications of that particular company. The study also recommends development of a gender code or policy basing on stewardship theory since it is well aligned to co-operative principles. Additionally, the study recommends that the companies should conduct frequent monitoring and evaluation of the boards put in place so as to maximize their potentials.