Relationship lending and financial performance of Savings and Credit Co-operative Societies in Tanzania

Abstract

PurposeThis paper examines the influence of relationship lending on the financial performance of Savings and Credit Co-operative Societies (SACCOS) in Tanzania.Design/methodology/approachA panel data of 460 observations representing 115 SACCOS from Tanzania was used. Descriptive statistics and panel regression models were employed to analyse the data.FindingsThe results show that the duration of the relationship is negatively and significantly related to SACCOS financial performance, substantiating the relationship lending theories. The number of relationships has an insignificant effect on financial performance.Research limitations/implicationsThe study focused on the duration and the number of relationships as aspects of relationship lending. The paper is limited in the sense that other aspects of relationship lending such as the concentration of relationships that could affect financial performance are not included in this study. The results apply to SACCOS and not to other microfinance institutions with strong bargaining power.Originality/valueThis study positions relationship lending in the SACCOS context where the market for the wholesale loan is less competitive.