Effect of Licensing Requirement on the Financial Performance of Deposit Taking Savings and Credit Cooperatives Societies in Kenya: A Case Of Selected Saccos In Nairobi

Abstract

SACCOs in Kenya are required to adhere to regulations set in SACCO’s regulation authority (SASRA). The management has to present the capital adequacy return reports, liquidity statement report, Statement of financial position and Statement of deposit return as well as Return on investments report which compares land, building, and financial assets to the SACCO’s total assets and its core capital. This study sought to fill the existing knowledge gap to determine the effect of SASRA regulation on Sacco’s financial performance and to answer the questions what is the effect of SASRA regulations on SACCO’s financial performance in Kenya. The objective of the study is to assess the effect of SASRA regulations on financial performance of SACCO societies in Kenya. The descriptive survey design was adopted in this study. The research targeted all the 41 SASRA licensed deposit-taking SACCOS in Nairobi. The study used secondary data that was obtained from the financial statements of the SACCOs. Computer software (STATA) aided the analysis process where a statistical hypothesis test (Hausman specification test) was used to evaluate which model between random effects or fixed model corresponds to the data. A regression model was developed based on the outcome of the Hausman test. The results were analysed in form of tables and figures. Finally, conclusion and recommendation was provided. Presentation was done by use of tables for easy understanding. The study used panel regression (random effect) to investigate the relationship. The study results indicated that capital adequacy, liquidity and asset quality were significant predictors of ROE for the deposit taking SACCOs. Based on the study findings discussed above three recommendations are provided based on the objectives of the study. First given that all the independent variables had a positive effect on return of assets and return on equity, the study therefore recommends that deposit taking SACCOS in Kenya need to focus on how their performance relates to returns to equity. This is due to the fact that capital adequacy was observed to have a significant effect on return on asset and return on equity. Secondly, deposit taking SACCOS should observe their liquidity levels to ensure that they are liquid enough to perform their activities. Poor liquidity levels in SACCOS point to high riskiness and the inability of the SACCO to perform their short term obligations competently. Further, though asset quality had a relatively low significance on return on asset as compared to return on equity, it is important for deposit taking SACCOS to observe efficiency and effectiveness in dealing with delinquencies since the greatest asset of a given SACCO is in terms of performing loans. A high non-performing loan affects the SACCOS operations and has a trickledown effect on the SACCOS financial performance. The study further recommends research using different ratios.