Capital Structure and Profitability of Deposit Taking Savings and Credit Cooperative Societies in Nairobi City County, Kenya
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Date
2025-10
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Kenyatta University
Abstract
The profitability of SACCOs in Kenya has become a growing concern despite their critical role in promoting financial inclusion and economic empowerment. Many SACCOs continue to record fluctuating and, in some cases, declining profitability levels, with increasing financing costs, inefficient capital utilization, and weak liquidity positions undermining their sustainability. The total ROA has significantly decreased from an average of 2.01% in 2017 to 1.01% in 2022. Inefficient management of debt and equity financing has limited operational performance and profitability, yet there is limited empirical evidence on how different capital structure components influence SACCO profitability in Kenya. Adopting a positivist philosophy and an explanatory research design, the study undertakes a census of all 42 formally registered deposit-taking SACCOs in Nairobi City County, analyzing secondary financial data spanning the period 2018–2023. Data analysis involved descriptive statistics to summarize financial performance, correlation and regression analysis to test hypothesized relationships, and moderation analysis to explore the influence of liquidity, all conducted using STATA software. The findings reveal that long-term debt and internal equity have a significant positive effect on SACCO profitability whereas short-term debt and external equity do not exhibit significant effects (p > 0.05). Liquidity significantly moderates the, highlighting its critical role in financial stability. The study concludes that SACCOs should adopt a conservative approach to long-term debt financing, prioritize internal equity for sustainable growth, limit reliance on short-term debt, and maintain adequate liquidity to optimize profitability. These findings provide practical insights for SACCO managers, policymakers, and regulators seeking to strengthen the financial performance and resilience of Kenya’s SACCO sector.
Description
A Research Thesis Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of the Requirements for the Award of the Degree of Master of Science (Finance Option) of the School of Business, Kenyatta University, October 2025.
Supervisor
1. Dr. Job Omagwa
2. Dr. John Mungai,