Credit Management Practices and Financial Performance of Deposit Taking Savings and Credit Cooperatives in Kericho County, Kenya
Sing’ombe, Zablon Basweti
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The study assessed Credit Management Practices and Financial performance of Deposit taking Sacco’s in Kericho County, Kenya. The researcher sought to establish the connection between financial performances of Sacco’s and credit policy, credit risk control, credit collection practices and credit recovery strategies. The target population was four deposit taking Sacco’s in Kericho County that are regulated by Sacco Societies Regulatory Authority. This was done against rising cases of non-performing loans among the deposit taking Sacco’s which recorded a non performing ratio of 11.42 per cent in 2017, the ratio is above the recommended rate of 5 percent. Deposit taking Sacco’s have also experienced declining performances in terms of return on assets and return on equity with some such as Ekeza Sacco, Good life Sacco and metropolitan Sacco being blacklisted from offering banking services to the public. The indicators of financial performance were return on assets, return on equity and non-performing loans. The research was based on the anticipated income theory, asymmetric information theory and transaction cost theory. The study applied descriptive survey design on the target population. Census approach was used to conduct the study. The researcher used both primary and secondary data for the purposes of conducting research. Regression analysis was used to show the relationship between credit management practices and financial performance of Deposit Taking Sacco societies. Questionnaires were used to collect primary data which was analysed by descriptive and inferential statistics. Hypothesis testing was done at a significant level of 0.05. Diagnostic tests such as normality test, Multicollinearity, heteroscedasticity and autocorrelation test were conducted to ascertain the assumptions of linear regression. Secondary data was obtained from financial statements in order to conduct a cross sectional survey to reveal performance trends over the period. The study established that all credit management practices had a statistically significant and positive influence on financial performance of deposit taking Sacco’s in Kenya. The p-values of credit policy, credit risk control, credit collection practices and credit recovery strategies are 0.036, 0.047, 0.023, and 0.044 respectively. Credit collection practices were found to highly influence financial performance while credit recovery strategies influenced financial performance of deposit taking Sacco’s to a less extent. The study recommends that the managers of the Sacco should implement and apply credit management practices and policy to enhance their financial performance. The study also recommends that Sacco regulator should formulate policies and guidelines on credit management practices to improve financial performance. The study concludes that deposit taking Sacco’s should adopt and improve credit collection practices and credit recovery strategies since they are positively and significantly affect their financial performance. The study recommends that the government through regulatory body to create favourable policies geared towards the implementation of credit management practices in deposit taking Sacco’s. The study concludes that credit management practices is the main driver of financial performance of deposit taking Sacco’s in Kericho County, Kenya.