EFFECT OF ASSET QUALITY ON THE FINANCIAL PERFORMANCE OF SAVINGS AND CREDIT SOCIETIES IN KENYA

Authors

  • Jane J. Barus Jomo Kenyatta University of Agriculture and Technology
  • Dr. Willy Muturi Jomo Kenyatta University of Agriculture and Technology
  • Dr. Patrick Kibati Jomo Kenyatta University of Agriculture and Technology
  • Dr Joel Koima Jomo Kenyatta University of Agriculture and Technology

DOI:

https://doi.org/10.47672/ajf.160

Keywords:

asset quality, financial performance, savings and credit societies

Abstract

Purpose: The purpose of this study was to establish the effect of asset quality on the financial performance of savings and credit societies in Kenya.

Methodology: The study employed an explanatory research design. The target population was 83 registered deposit taking SACCO's in Kenya that have been in operation for the last five years. The sample size for the study was all 83 SACCOs that have remained in existence since 2011-2015. Census methodology was used in the study.  Both primary and secondary sources of data were employed.  Multiple linear regression models were used to analyze the data using statistical package for the social sciences (SPSS) and STATA. A pilot study was conducted to measure the research instruments reliability and validity. Descriptive and inferential analysis was conducted to analyze the data. The data was presented using tables and graphs.

Results: Based on the findings the study concluded that asset quality influenced the financial performance of savings and credit societies in Kenya. This can be explained by the regression results which showed that the influence was positive and also showed the magnitude by which asset quality influenced the financial performance of savings and credit societies. The univariate regression results showed that asset quality influenced the financial performance of savings and credit societies by 5.827units.

Unique contribution to theory, practice and policy: The study recommended that management need to be cautious in setting up a credit policy that will not negatively affects profitability and also they need to know how credit policy affects the operation of their banks to ensure judicious utilization of deposits and maximization of profit. The study also recommended for credit information sharing between SACCO's. This will play a significant role in determining performance of deposit taking SACCO's. Further, the study recommended that SACCO's opt for equity financing instead of debt financing to improve on its leverage. SACCO's should also avoid excessive lending, maintain high credit standards and limit lending to un-hedged borrowers.

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Author Biographies

Jane J. Barus, Jomo Kenyatta University of Agriculture and Technology

Post Graduate Student

Dr. Willy Muturi, Jomo Kenyatta University of Agriculture and Technology

Lecturer

Dr. Patrick Kibati, Jomo Kenyatta University of Agriculture and Technology

Lectuer

Dr Joel Koima, Jomo Kenyatta University of Agriculture and Technology

Lecturer

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Published

2017-01-17

How to Cite

Barus, J. J., Muturi, D. W., Kibati, D. P., & Koima, D. J. (2017). EFFECT OF ASSET QUALITY ON THE FINANCIAL PERFORMANCE OF SAVINGS AND CREDIT SOCIETIES IN KENYA. American Journal of Finance, 1(4), 13–25. https://doi.org/10.47672/ajf.160

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