Effect of Unsecured Commercial Bank Loans on Financial Performance of Savings and Credit Co-Operative Societies in Kenya

Everlyn Ninga Munene

doi:10.11648/j.ijafrm.20190401.11

Abstract

Changes that occur in the co-operative sector affect the development of the country and the general welfare of the members. Given the increasing aggressiveness by commercial banks in Kenya to offer unsecured loans to both their clients and non-clients and their marketing techniques that ensures wide coverage, then there is likelihood of the unsecured commercial bank loans affecting the financial performance of Savings and Credit Co-operative Societies in Kenya. Thus the general objective of this study was to establish the effect of unsecured commercial bank loans on financial performance of Savings and Credit Co-operative Societies in Kenya. The specific objectives of the study were to establish the effect of unsecured commercial banks loan amount, loan interest rate and loan tenure on financial performance of Savings and Credit Co-operative Societies in Kenya. The research adopted a causal research design. The population of the study was the 177 licensed deposit taking Savings and Credit Co-operative Societies and 43 licensed commercial banks in Kenya as at 2015. Secondary data was obtained from Savings and Credit Co-operative Societies Regulatory Authority Annual Supervision Reports and Central Bank of Kenya Bank Supervision Reports using data collection checklist. The study established that unsecured commercial banks loan amount and loan interest rates had a positive significant effect on financial performance of Savings and Credit Co-operative Societies with P-values of 0.004 and 0.03 and coefficients of 0.006468 and 0.013 respectively. Unsecured commercial banks loan tenure had a negative significant effect on financial performance of Savings and Credit Co-operative Societies with a P-value of 0.018 and a coefficient of -0.74. The findings of this study would be of benefit to the management and policy makers of Savings and Credit Co-operative Societies in formulating policies that would ensure they remain competitive amidst competition from commercial banks.

Highlights

IntroductionSACCOs are co-operatives which furnish their members with convenient and secure means of saving money and obtaining credit at reasonable rates of interest [31]
Where: Y = Return on Assets for SACCOs measured by the simple average ROA (2011-2015) β0 = Constant term/ the interception point of the regression line and the y-axis βi = Slope coefficient of the ith independent variable ( i = 1, 2, 3) X1 = Unsecured commercial banks loan amount (LA) X2 = Unsecured commercial banks loan interest rate (LIR) X3 = Unsecured commercial banks loan tenure (LT) ε = Error term
Unsecured commercial banks loan amount was strongly positively related to financial performance of SACCOs and concluded that an increase in unsecured commercial banks loan amount results into a corresponding increase in financial performance of SACCOs

Summary

Introduction

SACCOs are co-operatives which furnish their members with convenient and secure means of saving money and obtaining credit at reasonable rates of interest [31]. Cooperative societies are organizations which are user-owned, user-controlled and user-benefited which operate under the seven co-operative principles namely; open and voluntary membership, autonomy and independence, democratic member control, economic participation of members, education, information and training for members, cooperation among various co-operatives and concern for the community Democratic and self-controlled business associations, co-operatives offer the institutional framework through which local communities gain control over the productive activities from which they derive their livelihoods [64]. The basic function of SACCOs is to provide credit facilities at low cost [74]. This is done through pooling together members’ savings.

Objectives

Methods

Findings

Conclusion