Financial Structure And Financial Intermediation Efficiency Of Deposit Taking, Saving And Credit Cooperative Societies In Kenya

Abstract

Financial structure is a concept that generally describes the manner in which a firm finances asset through the combination of both debts, equity and any other hybrid security. “Financial intermediation within the financial sector is very crucial in promoting financial services access as well as ensuring the financial sector stability as a key component of the financial system. Financial sector firms normally tend to exhibit a higher level of financial intermediation efficiency than firms in other sectors due to their ability to transform savings received primarily from household economic units into credit or loans for companies and others to invest in buildings, equipment and other capital goods. Therefore, by enhancing their efficiency, commercial banks are in a position to offer their financial services more effectively. SACCOs in Kenya play a very significant role in financial intermediation as savings through them translates to around 48.55% of the gross national savings. However, despite these developments, SACCOs are still facing numerous challenges especially in terms of their overall financial structure. For example, there was an increase in the amount of non-performing loan ratio on SACCOS to 6.30 percent back in 2018 down from 6.14 percent of what had been reported in 2017.Therefore, the study bridged this research gap by examining the relationship between capital structure and financial intermediation efficiency of deposit taking SACCOs in Kenya. The study adopted a descriptive research design. The study target population were all 174 DT-SACCOs in Kenya. Simple random sampling technique was adopted. The study utilized secondary data taken from the financial statements submitted by each DTS to SASRA. STATA was used for data analysis. The research was based on balanced panel data from 2017 to 2021. The study findings observed that leverage had a positive and significant effect on financial intermediation efficiency of DTS operating in Kenya. The results also indicated that non-withdrawable deposits held had a negative but statistically significant effect on financial intermediation efficiency of DTS. Further, it was observed that share capital had a positive and in significant effect on financial intermediation efficiency of DTS operating in Kenya. It was concluded that maintaining high-level leverage is very crucial for deposit-taking SACCOs in order to enhance their financial intermediation efficiency. It was also concluded that the amount of share capital that a DTS has in terms of ordinary share capital, preference share capital and reserves play a very crucial role in determining its overall financial intermediation efficiency. It was recommended that DTS in Kenya should always ensure that they always maintain high leverage level so as to ensure that they are able to diversify their investments as well as helping them to set out a threshold for the expansion of their business operations. It was also recommended that policy makers in Kenya that are concerned with DTS regulation should ensure that that DTS across the country implement and adopt effective and sound financial structure decisions in order to enhance their financial intermediation efficiency and thus minimize the instances of DTS plunging into financial crisis that has caused many people across the country to lose a lot of money in the past.