Effect of credit management practices on financial performance of savings and credit co-operative societies in Kisumu county

Abstract

This has been an area of interest since SACCOs in Kisumu County have in the past registered declining trends; often times leading to collapse of some due to lack of competitive management skills, noncompliance with capital base threshold required by SASRA, non-recovery of loans due to poor credit management, Weak internal control systems leading to misappropriation of funds by management and untimely audits. Link between credit management and financial Performance is still not clear for SACCOs in Kenya. Studies have been done on same but few have explained much of empirical literature in context of a SACCO, hence it has remained area of interest for empirical study and this formed a motivation for the study. It involves organization of the firm’s resources and motivation of the staff to achieve objectives. Performance is important because its success or failure rate may have a significant impact on the success and sustainability of the business. Specifically, the study intended to establish Management competency on performance, Analyze Credit Management on performance, determine Capital Adequacy on performance, and examine how Internal Control affect financial performance of Saccos. The study was guided by Resource Based View Theory, Agency Theory and Credit Risk theory. The study area remained limited to Kisumu County due to a number of failing SACCOs between 2014 to 2019 and low membership registration turn out in SACCOs, stratified Random sampling method was used, sample size was arrived at using Krejcie and Morgan table which was 72 with a target population of 120 respondents consisting of; Board Chairpersons, Managing Directors, Finance Manager from 12 randomly selected SACCOs operating in Kisumu County with samples collected using primary data without changing the environment. Questionnaire was used to gather primary data consisting of respondents’ opinion on Credit Management practices on Financial performance of SACCOs. Test on Validity and reliability of questionnaires was pre-tested through a pilot study and analyzed using descriptive analysis (mean, frequencies, standard deviation, ANOVA) and multiple regression analysis the output were presented in tables, graphs and charts. With a significant level of 0.05 From the finding’s management competency has a negative effect on Financial Performance of Saccos, capital adequacy and Internal Control systems had a positive relationship with Financial Performance. Encourage members to join SACCOs following high level of education in the institutions, Credit reminder used by SACCOs is manual hence low repayment and debt recovery period not certain. The study concludes; for every unit increase in management competency, Capital Adequacy and ICS results in better financial performance of SACCOs. Best credit management practices is a way to better financial performance for SACCOs. This research will be of benefit to the policy makers, Researchers, scholars for further research and the general public for information.