Effect of Corporate Governance Practices On Financial Performance of Saccos In Kericho Municipality

Abstract

In Kenya, SACCOs contribute 45% of country's GDP and to date the sector has effectively mobilized deposits and assets totaling to kshs200 billion and 210 billion respectively. However the successes and rapid growth of SACCOs has begun to reveal a number of basic flaws in the Products they offer. In particular, the inherent liquidity problems of many SACCOs has led a small subset of them beginning to raise additional voluntary but more liquid savings deposits from members and even some non-members Front Office Savings Activities (FOSAs). Persistent poor financial performance of SACCOs has caused most Sacco's not to achieve their desired objectives of corporations and those of stakeholders like payment of good return to shareholders on their investment i.e. dividends. This has also led to scholars, policy maker and all stakeholders in the corporate world to extensively interrogate the practice of corporate governance in SACCO .The purpose of this study was to establish the effect of corporate governance practices on the financial performance of Savings and Credit Cooperatives in Kericho Municipality .Specifically the study sought to establish corporate governance principles adopted by Sacco's, assess the role of board of directors and the financial performance of Savings and Credit Cooperatives in Kericho Municipality and to establish effect of financial reporting on growth of SACCOs in Kericho Municipality . The study adopted the descriptive research design. The conceptual framework of this study comprises of independent variable; corporate governance and dependent variables financial performance. To undertake this study, a sample of 28 was drawn from a population of 194 employees and 31 BOD among the 4 SACCOs in kericho municipality and a questionnaire distributed to each of the SACCOs, collected and analyzed the study mainly used the primary and secondary data that was collected by use of self administered questionnaires. The data was analyzed by use of both descriptive and qualitative techniques. The study will be of importance to management on how various aspects of corporate governance practices affect the operations of SACCOs, the study will also identify the impediments that face SACCO societies in approaching various corporate governance practices that affect their financial performance, police makers will also obtain guidance in designing appropriate practices that would regulate the shareholders participation in affecting the financial performance of the SACCOs in Kenya. The study would provide information to potential and current scholars with regards to the relationship between corporate governance and financial performance. The data was presented in the form of charts, graphs and frequency tables. Corporate governance principles adopted by most Sacco's included board of directors are elected by their members during AGM by majority. The study indicated that board of directors have great role they play in running of the SACCOs which include proper utilization of funds, proper supervision of management staff and the entire SACCOs and to ensure proper internal controls are in place. According to the study level of reporting do affect level of SACCO,s growth is most high which was indicated by increase in number of members in each year. Corporate governance has been found to be strongly positively correlated with financial performance, implying that poor corporate governance practices are associated with poor financial performance, and vice versa. The result will form a focal point for further research in Implementation of corporate governance principles within the SACCOs in Kenya