The effect of commercial bank loans on savings and credit socities' loans : a case study of Nairobi Central Business District

Abstract

In Kenya the responsibility for the promotion, growth and development of the cooperative sector has been given to the Ministry of Co-operative Development and Marketing. This sector has made tremendous contribution towards wealth and employment creation. Currently there are over 10,800 registered Co-operative Societies with a membership of over 6 million, (Mutua &Oyugi, 2006). Co-operatives are the most practical ways of pulling resources together and accessing credit easily among their members. In the co-operative movement, savings and credit cooperative societies are the most active segment. By providing savings and loan facilities, SACCOs make a significant contribution towards providing development capital. The SACCO organizational system is members based. Members' voluntary savings are accumulated in the form of shares and deposits. It is these savings that form the basis for extending credit to members' various needs. The success and potential of SACCOs as provider of financial services, has not been without challenges. Commercial banks have moved into this sector offering personal loans at very attractive terms. Market liberalization has resulted into easy accessibility to finance. The mainstream banking sector has changed its focus and now the target is, small savers who have been induced with personal loans hitherto the domain of SACCOs. At a time when Kenyans, especially retail customers are being literally begged for business by commercial banks, the once powerful savings and credit co-operative society movement could easily lose its ground (Omanga, 2007). The Objective of this study was to evaluate the effect of commercial bank loans on Savings and Credit Societies' loans. The Study targeted a Population of 174 SACCOs based within the Nairobi Central Business District. Systematic Sampling method has been used to select a sample of 20 SACCOs for purposes of the Study. Data was collected using a questionnaire administered through drop and pick method and analyzed with the help of the Statistical Package for Social Scientists (SPSS) programme