Loan Repayment Management Practices and Financial Performance of Deposit Taking Savings and Credit Cooperative Societies in Tharaka Nithi County, Kenya

Abstract

Savings and Credit Cooperative Societies play an important part in resource mobilization and provision of credit at affordable rates. This is attributed to the fact that people come together under one common goal of mobilizing their financial resources and have a framework that allows lending to members for different use, including investment in different projects. However, when it comes to financial performance, most of the Savings and Credit Cooperatives Societies have been recording poor financial performance because of non-performing loans. This is the main reason why loan portfolio management is considered as a major challenge to micro-finance institutions across the globe. The current study aimed at investigating the effects of loan repayment management practices on financial performance of deposit-taking Savings and Credit Cooperative Societies with a case study of Tharaka Nithi County, Kenya. The researcher evaluated the effect of loan collection policies, credit risk management practices and loan default on Savings and Credit Cooperatives Societies’ financial performance. The study was anchored by Credit Risk Theory, Pecking Order Theory and Schumpeter’s Innovation Theory. To achieve these objectives, the study adopted a survey research design as the most appropriate framework of investigating the subject matter. A total of five Savings and Credit Cooperatives Societies within Tharaka Nithi County were investigated with 50 employees (managers) being the targeted population. Both primary and secondary data were sourced through of semi-structured questionnaire and data collection sheet, particularly for over a five-year period, covering 2016 to 2020. Descriptive statistics, such as percentages, frequencies and weighted means and inferential statistics, including an Analysis of Variance (ANOVA) and regression analysis was employed. From the correlation analysis, it was established that loan repayment management practices which involve loan collection policies, credit risk management practices and loan default significant influence financial performance of deposit-taking SACCOs since the p-value was 0.000 which is less than 0.05. Also, the ANOVA results show a statistical significant relationship between loan repayment management practices and financial performance of SACCOs since the P-value was 0.000. The study concluded loan collection policy, credit risk management practices and loan defaulting significantly affected financial performance. SACCOs should examine their credit rules on a regular basis. This would improve the examination of loan applications and guarantee that they are evaluated and rated on their merits. For SACCOs to develop sustainably, they must provide prompt loan distribution to promote loan recovery and reduce administrative expenses.