Risk Management and Financial Performance of Deposit Taking Savings and Credit Co-Operative Societies in Uasin Gishu County, Kenya
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Date
2017-09
Authors
Orao, Jacob
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Risk management framework is important for the financial stability of Deposit Taking
Saccos (DTS) and other money lending institutions in Kenya. Effective risk management
can decrease the probability of default and ensure financial stability in the Savings and
Credit Cooperative Societies. The aggregate ratio of non-performing loans to gross loans
of Deposit Taking SACCOS has increased in successive years since 2013 while there level
of compliance with capital adequacy ratios as well as the Sacco societies Act, 2008 and
SASRA regulations and guideline has remained low. Furthermore, most DTSs are still not
able to meet their short term obligations to its members especially loan disbursement. The
general objective of the study was to analyze the effect risk management practices on the
financial performance of Deposit Taking SACCOs in Uasin Gishu County, Kenya.
Descriptive research design was used in this study. Primary data was collected using
structured questionnaire having both closed and open ended questions from employees in
7 Deposit Taking SACCOs in Uasin Gishu County. Stratified simple random sampling
were used to select 35 employees from the 12 SACCOS. Secondary data was collected
from journals, books, published and published research project, SASRA published audited
annual reports government reports and website through internet search and in the university
library. Data collected was collated, edited, and processed using SPSS version 20 and excel
spreadsheet. Descriptive statistics, correlation analysis and multiple regressions were used
in the data analysis. The findings of the study revealed a significant and positive
relationship between predictor variables (credit management practices, liquidity risk
management practices and compliance risk management practices) and financial
performance .The three predictor variables had a positive coefficient indicating an
increased use of credit risk management practices, liquidity risk management practice and
compliance risk management practices would result into increased profitability. Credit risk
management practice had greater effect on profitability given the larger coefficient of 0.772
compared to 0.468 for liquidity risk management practices and 0.214 for compliance risk
management practices. The study concludes that consistent and effective management of
risks in the SACCOs would improve their financial performance hence the need to select
and use appropriate risk management practices while ensuring continuous review and
control. The study recommends that SACCOs should ensure cost effective and timely risk
identification, measurement, prioritization and mitigation measures to ensure increased
financial performance. In addition the management of licensed Deposit Taking SACCOs
should strategically and continuously adopt effective and efficient credit risk management
practices to minimize cases of loan default so as to enhance profitability and financial
performance. Besides SACCOs should aggressively mobilize members’ shares and ensure
retention of earnings so as to grow their capital reserves to boost capital adequacy and meet
the capital reserve requirement by SASRA. This would ensure that SACCOs have sufficient
funds to meet credit obligations to clients and run the day to day operational costs.
Furthermore SACCOs should strive to ensure full compliance with SACCOs Society Act
2008, SASRA regulations on capital adequacy, asset quality, earning rating, liquidity
rating, risk management, board composition and quality.
Description
A Research Project Submitted to the School of Business in Partial Fulfillment of the Requirements for the award of the Degree of Master of Business Administration (Finance Option) of Kenyatta University