Financial Management Practices and Financial Performance of Deposit Taking Saccos in Nairobi City County, Kenya

Abstract

Purpose: The purpose of this study was to examine the effect of financial management practices on financial performance of SACCOs in Nairobi City County, Kenya.
 Methodology: This study adopted an explanatory research design. The target population consisted of the 215 deposit taking SACCOs in Kenya. A sample of 41 deposit taking Saccos in Nairobi city County registered by SASRA for the period 2015 to 2019 was drawn from the target population. Thus, the 41 deposit taking SACCOs as registered by SASRA and their published financial statements constitute the unit of analysis and unit of observation respectively. The census sampling method was used in order to gather enough information since the number of SACCOs is limited and justifies the requirements of efficiency, reliability and representativeness. Further, secondary data was also collected through data collection schedule. Facts and figures were collected through published financial reports and statements of deposit taking SACCOs licensed by SASRA in Nairobi County for the period 2015 to 2019 and the key financial information on the variables of concern were discerned from these reports. The data for this study was panel and therefore the STATA software was used for analysis under panel regression model. Descriptive analysis were done to explain the basic features of the data. Inferential analysis was done afterwards based on panel regression which was then used to test the research hypothesis according to the research specific objectives. The testing was under the 5% significance level.
 Findings: The results of the study revealed that fixed asset, loan portfolio, cash asset and financial investment management practices were positive and significantly correlated to financial performance of DT-Saccos in Nairobi City County. In addition, the results also indicated that financial investment management practices had a more positive and significant effect on financial performance, followed by loan portfolio management practices, then cash asset management practices and lastly fixed asset management practices. The moderating variable, sacco size was found to have a moderating effect on the relationship between financial management practices and financial performance of DT-Saccos in Nairobi City County.
 Unique Contribution to Theory, Practice and Policy: The study recommended that the management of DT-Saccos should consistently ensure they prepare cash budgets and maintaining a cash book so as to be able to manage their cashflows especially from the account receivables and account payables. They should also implement effective financial investment management practices that can help them reduce the risk of financial losses from investments such as projects or securities. The study findings may help policymakers in DT-Saccos such as the SASRA to enforce better loan portfolio management policies that encourage their customers to purchase loans and reduce cases of loan defaulting. Moreover, these policies may also be used to reduces the number of non-performing loans which have a significant effect on the ROA of the DT-Saccos. Researchers and Scholars could benefit from this study by use of the theories that were discussed in this study. They can also use the results to validate and corroborate findings of their own study.