EFFECT OF CREDIT ACCESS FUNCTION ON FINANCIAL PERFORMANCE OF SACCOS IN KENYA

Abstract

Purpose: The study sought to establish the effect of credit access function on financial performance of SACCOs in Kenya.Methodology: The study adopted a descriptive research design. The target population comprised of registered 181 deposit-taking SACCOs as at 31st December 2014 and the three licensed CRBs in Kenya. Stratified random sampling was used in the study, where SACCOs were grouped into five respective strata which were then randomly selected. The SACCOs were grouped into five respective strata of government based, teachers based, farmers based, private institutions based and community based. The study sampled 135 of the 181 (74.5%) licensed deposit taking SACCOs since these were the only licensed deposit-taking SACCOs by 2014. The choice of the licensed deposit taking SACCOs in Kenya was very objective since it was possible to obtain information that is representative of Kenya. In addition, SACCOs form the smaller arm in the financial sector and in most cases deals with a larger group of clients from the informal sector as opposed to other financial institutions like banks. Both primary and secondary data were analyzed using SPSS software, and statistics generated included descriptive statistics and inferential statistics. The particular descriptive statistics used included frequencies and percentages while the particular inferential statistics included Pearson correlation analysis and regression. Correlation analysis was used to establish either positive or negative relationships between the variables. Regression analysis was used to establish the significance of the variables and the degree of causal effect of the independent variables on the dependent variable. The hypotheses testing were conducted using simple regression model.Findings: From the data analysis the study concluded that there was a significant and positive relationship between credit access function and financial performance thus the existence of credit reference bureaus was suitable for improving financial performance of SACCOs. This implied that CRBs help improve credit access resulting to increase in income in form of interest charged from the loans granted. In addition, Credit reference bureaus have led to increase in small and short-term loans. Credit reference bureaus helped members remove fear for access of credit and also for lenders no longer fear to get a negative selection of applicants since their competitor has already picked all cherries.Recommendation: The study recommended that lenders should reduce unnecessary transaction costs like high interest rates on provision of credits which may shy away borrowers or even make loans expensive thus reducing credit access to borrowers. There was also a need to develop strategic plans to act as a road map for the SACCOs future plans that would enhance credit access and performance improvement.