Credit management practices and financial performance of deposit taking savings and credit co-operative societies in Marsabit County, Kenya.
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Date
2025-03
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Kenyatta University
Abstract
Through the maintenance of credit risk exposure within reasonable bounds, credit management practices aim to optimize a saving and credit co-operative societies risk-adjusted rate of return. The level of professionalism, governance, policies and processes, and risk management that is in place, significantly impact credit management success. This topic has gained attention because deposit-taking saving and credit co-operative societies in Marsabit County, Kenya have historically shown declining trends. These trends have frequently resulted in the eleven saving and credit co-operative societies failed as a result of noncompliance with Sacco Societies Regulatory Authority capital base threshold and a lack of competitive management abilities, poor credit management that prevents loans from being recovered, weak internal control systems that allow management to misappropriate funds, and infrequent audits. The study aimed to explore the effect of credit management practices on financial performance of savings and credit co-operative societies in Marsabit County, Kenya. Specifically, the investigation intends to determine the effect of internal control system and Audit, management competency and capital adequacy influence Sacco financial performance in Marsabit County, Kenya. The study was guided by Resource Based View Theory, Agency Theory and Financial Intermediation Theory. The study adopted descriptive research design. Random sampling technique was utilized. The study utilized primary and secondary data. The research used questionnaire and published article/financial reports to obtain data respectively. The sample size was selected using a stratified random sampling procedure. To produce the analyzed data, Statistical Package for the Social Sciences version (23) was utilized. Analysis results were displayed in tables and charts, with interpretations provided in accordance with the objectives of the project and a generalization of the results. The study upheld high ethical standards by securing a survey license from the National Commission For Science, Technology & Innovation and guaranteeing the participant’s confidentiality and anonymity. The findings revealed that correlation coefficient (R) in this model is 0.817, indicating a strong positive relationship between the predictors (internal control systems and audit, management competency, and capital adequacy) and the financial performance of deposit-taking saving and credit cooperative societies. Further, the findings established that significance level (p-value) associated with the F-statistic is 0.003, which is well below the commonly accepted threshold of 0.05 which indicate that there is positive relation between credit management practices and financial performance of deposit-taking saving and credit co-operative societies. The research concludes that there is a strong correlation between the effectiveness of internal controls and audits and the overall financial performance of deposit-taking saving and credit co-operative societies. The managers of the saving and credit co-operative societies should implement regulations that promote the establishment of robust internal control systems and audit mechanisms within saving and credit co-operative societies. Clear guidelines should be provided to ensure that saving and credit co-operative societies maintain adequate controls to manage credit risks effectively. The managers of saving and credit co-operative societies must prioritize investing in continuous training and capacity building programs to enhance their management competency in credit risk assessment, monitoring, and recovery
Description
A project submitted to the School of Business, Economics and Tourism in partial fulfilment of the requirement for the award of degree in Master of Business Administration (Finance) of Kenyatta University, March 2025
Dr Fredrick W S Ndede