Lending Practices and Financial Performance of Savings and Credit Cooperatives in Kericho County, Kenya

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Date
2024-10
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Kenyatta University
Abstract
At the heart of financial performance of financial organizations is lending and thus lending practices signify the prudent measures that financial institutions undertake before they issue loans to their customers. Non-performing loans remain to be a key challenge likely to be threatening the performance of SACCOs in Kericho County. The primary aim of this research was to assess how lending practices impact the financial performance of SACCOs in Kericho County. The study aimed to investigate the effects of various factors, including Know Your Customer (KYC) procedures, SACCO interest rates, loan security, and collaboration with credit reference bureaus on the financial performance of SACCOs in Kericho County. The research drew insights from five key theories: performance theory, information asymmetry theory, the 5 C’s model of client appraisal, loanable funds theory, and adverse selection theory. A descriptive cross-sectional research design was deemed appropriate for this study, with a target population of 345 employees from seven different SACCOs in Kericho County. Based on the results the variable “know your customer procedures” has a strong positive relationship with the financial performance of SACCOs in Kericho County. The result suggests that as SACCOs improve their know your customer procedures, their financial performance improve as well. The correlation analysis between SACCO interest rates and financial performance shows a positive relationship exists. This suggests a positive but average relationship. It means that as SACCOs offer more attractive lending rates, their financial performance can improve. However, the relationship is not as strong as with know your customer procedures. The study also sought to determine whether there existed a significant relationship between loan security and Sacco’s financial performance. The correlation analysis shows that a positive but weak relationship exists. The weak suggests that loan security is not a major concern since SACCOs loans are primarily guaranteed by members’ shares. Finally, the correlation analysis sought to determine whether there was a significant relationship between partnership with credit reference bureau and financial performance of SACCOs. The results indicate that a positive but weak relationship exists. In summary, strong and positive correlation is only observed for know your customer procedures. Average but positive relationship is observed for SACCO interest rates. However, loan security and CRB partnership have positive but weak relationship with financial. In the context of credit reference bureau procedures, the study noted that while many respondents were aware of these procedures, there was a lack of understanding regarding their chronological application. The researcher recommended that, to support the application of KYC principles, adequate technology and information systems be implemented to monitor customer transactions based on their individual profiles. For SACCO interest rates, it was suggested that SACCO management should enhance profitability strategies to consistently achieve their interest rate goals. Regarding credit reference bureau policies, the researcher recommended raising awareness among SACCO clients about these policies and their importance in accessing credit facilities, ensuring adherence at all times.
Description
A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of the Requirements for the Award of Degree of Master of Business Administration (Finance Option) of Kenyatta University, October 2024. Supervisor Daniel Makori
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