Loan Security Policies and Financial Performance of Savings and Credit Cooperatives in Kakamega County, Kenya

Abstract

Evidence from studies on SACCOs shows that majority of them have failed to focus on loan collection policies and financial performance of the SACCOs. This signifies existence of a gap in empirical literature. In Kenya, current reports indicate that they are on the brink of collapse as a result of liquidity problems. Government efforts through legislations to safeguard Saccos have hit a snag. Experts have observed that Saccos sector remains fragile. Evidently, SASRA recently gave strict licenses to Saccos that had failed to meet capital requirement of Kshs 10 million. Likewise, unscrupulous Saccos have also colluded among themselves to fleece members of their deposits and investments. Further, parliament recently passed a bill that made mandatory university qualification a requirement for one to hold leadership in Sacco. Though effort by all stakeholders to save troubled Sacco sector is commendable, dynamism of Sacco sector and unending desperate effort to revamp it has now put to question and left most stakeholders in a dilemma on whether loan policies have influence, if any on financial performance of Saccos. This study will therefore investigate the influence of loan collection policies on financial performance SACCOs in Kakamega County, Kenya. This study is supported by Modern portfolio theory.A descriptive survey was adopted and targeted 143 senior management staff from 13 SACCOs located in Kakamega County with a sample size of 105 selected using stratified random sampling technique. A structured questionnaire was used as instrument. A pilot study was conducted among 20 senior management staff of SACCOs in Bungoma County, Kenya, so as to check validity and reliability. The data was coded for completeness and accuracy and stored. Computer software- Statistical Package for Social Sciences (SPSS) version 24 was used in analysis. Descriptive statistics which include percentages, frequencies, mean, and standard deviations will be computed. For variable relationships, correlation analysis, linear and multiple regression analysis was computed. This study will aid SACCO management committees, staff and relevant shareholders in understanding the importance of loan collection policy that enables them seek solutions to the loan defaults. The study findings showed a positive correlation between Loan Collection Policies and financial performance (R= 0.758 with ROA). It was evident from results that adherence to Loan Collection Policies positively contributes to financial performance of Sacco’s in Kenya and there was variation on financial performance due to changes in loan collection policies. The study recommends that Saccos should adhere to loan collection policies to ensure increased financial performance and increased volume of business. It also recommends Stakeholders should management on toes and ensure they practice good corporate governance. The study concluded that Loan collection policies influence the financial performance of Saccos.