Factors influencing the effectiveness of guarantorship in loan recovery: the case of Mwalimu Sacco Society Ltd
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Date
2006
Authors
Mutura, James K.
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
There are about 4,200 sacco societies in Kenya which by December 2005, had
mobilized Kshs.105 billion representing 31 percent of the country's savings.
Mwalimu Sacco society Ltd is situated in Nairobi and established in 1974 is one
of the largest SACCO societies in the country. Its objective is to mobilize savings
and grant loans to members. By December 2005, Mwalimu Sacco society Itd had
mobilized Kshs.6.7 billion, which is equivalent to 6.3percent of all Sacco savings
in the country. By then the outstanding loans stood at Kshs.6.04 billion out of
which about kshs 35 million was deliquent. The securities for the loans are
loanees expected future income and guarantors.
Granted, that Sacco societies mobilize large amounts of savings and
consequently give huge loans on the premise that the latter will be paid promptly,
a mechanism of compelling loanees to pay such loans from other sources of
income in absence of employment income is lacking. Further the retirement
benefits authority (RBA) prohibits the use of a loa nee's pension in clearing the
loan liability. Given the magnitude of funds lent out, there is need to examine
factors that influence the effectiveness of guarantorship in loan repayment.
An exploratory study approach was adopted. It involved focus group interviews,
review of relevant literature and discussions with experts in the field of cov
operative management. The study used combination of stratified random
sampling and purposive sampling to obtain a sample of 200 guarantors who were
been attached for defaulted loans at Mwalimu Sacco Society in 2005.
Questionnaires were used to collect data from the attached guarantors.
Secondary data from the Sacco was used to identify loan defaulters and their
respective guarantors. Data acquired was analyzed through mean mode and
standard deviation in addition to analysis of variance (ANOVA). A Pearsons
correlation coefficient analysis was carried out to determine multicolinearity
amongst the independent variables.
Analyzed data is presented through the use of bar graphs, pie charts and tables.
Findings from the study revealed that females are more prompt in loan
repayment than males. The patriarchal nature of the Kenyan society emerged as
a major reason for this phenomenon. Age and gender were found to have an
impact on loan repayment. As members grew old they become more inclined to
repaying the loans than the young with females being more reliable in loan
repayment.
It also emerged that members' other sources of income and increased salaries
could hardly be traced to the Society in form of increased savings and
accelerated loan repayment.
Contrary to commonly held view that peer pressure encourages loan repayment,
the researcher found that peer pressure has no role in repayment of defaulted
loans. The government policy and regulations were also found to have a minimal
role in loan repayment.
Findings from the study revealed that as members income threshold increases,
their monthly savings with the Sacco do not increase correspondingly. Loss of
employment income was found to be the single most important reason for nonrepayment
of Sacco loans.
Description
Department of Accounting and Finance, 108p. 2006, HG 3393 .Z6M8