Effect Of Non-core Business Investments On Financial Performance Of Deposit-taking Saving And Credit Co-operative Societies In Kenya

Abstract

The concept of portfolio diversification has taken a global center stage in the process of determining the financial performance of investment companies and continues to be an increasingly important aspect of investment decisions in the world today. The environment in which SACCOs in Kenya operate is ever changing and continually presents opportunities and challenges which has seen a number of making losses. This study sought to establish the effect of non-core business investments on the financial performance of deposit-taking SACCOs in Kenya. The study specifically sought to determine the influence of investment in FOSA products, investment in treasury bills, investment in shares, real estate investment, and fixed deposits investment on financial performance of deposit-taking SACCOs in Kenya. The study was guided by agency theory, resource-based theory, pecking order theory, the neoclassical theory of investment, and the Q theory of investment. This study adopted a descriptive research design. The target population of this study was 174-deposit-taking SACCOs in Kenya. Secondary data collected was analyzed using correlation analysis, descriptive statistics and panel data regression analysis. The study established that investment in FOSA products, treasury bills, shares, real estate and fixed deposits have a significant effect on financial performance of deposit-taking SACCOs in Kenya. The study concluded that investing in stocks provides attractive long-term returns. Investment in real estate allows an organization to benefit from tax advantages and gain cash flow because the monthly income generated by rental properties can offset investors' expenses and return money to the organization. FOSA products improve financial performance by mobilizing savings. They accomplish this through various accounts that can be opened based on the SACCO members’ qualifications. The best investment portfolio for maximizing returns is a fixed deposit and when compared to a regular savings account, financial institutions offer competitive interest rates on fixed deposits, which may help compensate for the annual inflation rate. Treasury bills are a safe, short-term investment that provides an organization with returns after a relatively short period of time. The study recommended that investors who decide to invest in stocks should consider the long term, which means a 3-5 year time frame to maximize their investment. Deposit-taking SACCOs can invest in rental properties to generate regular income and capital appreciation while maximizing capital through leverage. Deposit taking SACCOs in Kenya should work on saving mobilization techniques for FOSA products in order to provide more information to current and potential members. They should develop and put in place revenue optimization systems. Deposit taking SACCOs should invest in short-term fixed deposits, and as short- to medium-term interest rates rise, the SACCO may begin to increase the duration of the Fixed Deposit to match. Contrast bank fixed deposits with corporate fixed deposits. The deposit taking SACCOs can buy short-term Treasury bills on Treasury Direct, the U.S. government's portal for buying U.S. Treasuries. Short-term Treasury bills can also be bought and sold through a bank or broker.