EFFECT OF FINANCIAL MANAGEMENT PRACTICES ON FINANCIAL PERFORMANCE OF SAVINGS AND CREDIT COOPERATIVE SOCIETIES IN KISUMU COUNTY, KENYA
Abstract
This study endeavored to investigate the influence of liquidity management, capital adequacy, leverage and capitalization on performance of SACCOs in Kisumu County, Kenya. The study adopted descriptive survey and targeted 151 senior and middle level management staff from 19 SACCOs located in Kisumu County. The study used structured questionnaire to collect primary data and a data collection sheet to collect secondary data on the dependent variable. Statistical Package for Social Sciences (SPSS) version 24 was used in data analysis. A total of 110 questionnaires were sent out for data collection in the field. Both descriptive and inferential statistics showed that all conceptualized independent variables significantly influence performance of SACCOs in Vihiga County. That is; from the values of unstandardized regression coefficients with standard errors in parenthesis, all the independent variables; liquidity management, capital adequacy, capitalization and leverage were significant predictors of SACCO performance (dependent variable). The study concludes that one; liquidity management is a significant predictor of financial performance of SACCOs, thus liquidity position of a SACCO in terms of cash position, capacity ratio and total deposits really influence financial performance of a SACCO; two; capital adequacy significantly influences financial performance of SACCOs, thus, improvement in effective capital adequacy requirements by SACCOs can have a positive impact on the performance of SACCOs. The study recommended that one; SACCOs should adopt resilient liquidity management practices to enable them boost their performance in both good and bad economic times; two; SACCOs should adhere to SASRA’s minimum capital adequacy requirements so as to cushion themselves against insolvency risks and three; SACCOs should prudently embrace the new capitalization policy as a savings mobilization and customer retention strategy so as to boost their capital and membership base.
Key Words: Liquidity Management, Capital Adequacy, Leverage, Capitalization, SACCOs in Kisumu County
CITATION: Tonui, C. K., & Otinga, H. N. (2019). Effect of financial management practices on financial performance of savings and credit cooperative societies in Kisumu County, Kenya. The Strategic Journal of Business & Change Management, 6 (1), 699 – 718.
Full Text:
PDFReferences
Abu-Rub, N &, Abbadi, S. M (2012).The Effect of Capital Structure on the Performance of Palestinian Financial Institutions. British Journal of Economics, Finance and Management Sciences, Vol. 3 (2)
Adams, J., Khan, H. ., Raeside, R., & White, D. (2007).Research methods for graduate business and social science students. New Delhi: SAGE Publications India Pvt Ltd.
Adelakun, O.J., &Olufemi, F.I., (2015) Capital Adequacy Ratio and Bank Profitability in Nigeria: A Linear Approach. International Journal of Novel Research in Marketing Management and Economics, 2(3), 91-99.
Ademba, C. (2012). Challenges facing SACCO regulations in Africa. Paper presented at 11th SACCA congress, Swaziland.
Arthurs, B &Busenitz, T (2013).Do capital adequacy requirements reduce risks in banking?.Journal of Banking & Finance, 23(5), 755-771.
Athanasoglou, P. Delis M., Staikouras C (2006). Determinants of Banking Profitability in the South Eastern European Region, Bank of Greece Working Paper 06/47.
Babbie, E. (2002). The basics of social research. Belmont: CA: Wadsworth Publishing.
Bald, J. (2007). Treasury Management of SACCOs: Procedure Guidelines and Training Manuals. Retrieved from Micro Finance Gateway Manuals.
Barus, J.J., Muturi, W., &Kibati, P., (2017). Effect of Capital Adequacy on the Financial Performance of Savings and Credit Societies in Kenya, American Journal of Finance, 1(4), 1-12.
Berger, A., Bouwman,C., , T., &Schaeck, K. (2012). Bank Risk Taking and Liquidity creation following regulatory interventions and capital support .Deutsche Bundes bank discussion paper, series 2, NO 05/2010.
Branch, B. (2005).Working with the Savings and Credit Cooperatives. Donor Brief
Coleman, A.K., (2007) The impact of capital structure on the performance of microfinance institutions. The Journal of Risk Finance Vol. 8 No. 1, pp. 56
Cooper, D., &Schinder, P. (2010).Business Research methods (8th Ed.). New Delhi: tata McGraw hill.
Ebrati,E, Emadi, B, Balasang G and Safari D(2013).The impact of capital-structure choice on firm performance: Empirical evidence from Egypt. The Journal of Risk Finance Vol. 10 No. 5, pp. 477
Economist Intelligence Unit (2004). Country Report; No. 4, Kenya
Grace, F. M. (2009). The Future and Insurance Regulation in the United States. Washington D.C, USA: Brooking Institution Press
Gwenyi, M. &Karanja J, (2014) Effect of financial leverage on financial performance of deposit taking savings and credit cooperatives in Kenya. International Journal of Academic Research in Accounting, Finance and Management Sciences. Vol 4, no. 2, pp 178-
Haber, S., and Reichel, A (2005).Identifying Performance Measures of Small Ventures-The Case of the Tourism Industry, Journal of Small Business Management, 43(2): 257-287.
Hair, E.Jr., Black, W. C., Babin, B.J., Anderson, R. E., & Tatham, R. L.(2006). Multivariate data analysis (6thed,).New York: Macmillan.
Hope, S. (2010). Promoting the Effectiveness and Efficiency of Credit Unions in UK. London, UK: Friends Provident Foundation.
Janglani S. &Sandhar S.K. (2013). A Study on Liquidity and Profitability of Selected Indian Cement Companies: A Regression Modeling Approach. International Journal of Economics, Commerce and Management United Kingdom, 1 (1), 1-24.
Jensen, M. C., &Meckling, W. H. (2009). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of financial economics 7(2).
Kahuthu, D. G., Muturi, W., &Kiweu, M., (2015) The Impact of Core Capital and membership growth on financial performance of Deposit Taking Savings and Credit Cooperatives in Kenya. European Journal of Business Management, 7 (21), 146-161.
Kahuthu, D.G.(2016). Impact of Prudential Regulation on Financial Performance of Deposit Taking Savings and Credit Co-operative Societies in Kenya, Unpublished PhD Thesis.Jomo Kenyatta University of Agriculture and Technology.
Kariuki, P.W., & Wafula, F.O., (2016). Capital Adequacy and Financial Performance of Deposit Taking Saving and Credit Cooperative Societies in Kenya, The International Journal Of Business & Management, 4 (9), 20-25.
Khan, M. K., & Syed, N. A. (2013).Liquidity Risk and Performance of the Banking System. Journal of Social Research, 55-70.
Kivuvo, R. M., &Olweny, T. (2014).Financial Performance Analysis of Kenya’s SACCO Sector Using the Altiman Z Score Model of Corporate Bankruptcy. International Journal of Business and Social Science, 5(9).
Kioko, A. M., (2016). Effect of Capital Adequacy Regulations on Savings and Credit Cooperative Societies in Kenya: A Study of Deposit-Taking Saccos in Nairobi County, MBA unpublished thesis, USIU-A, Kenya.
Kothari, C.R., (2008). Research Methodology: Methods and Techniques, New Age International Publishers
Lan, L. L., &Heracleous, L. (2010). Rethinkingagency theory: The view from law. Academy of management review, 35(2), 294-314.
Majakusi, J. (2016). Effect of Liquidity Management on the Financial Performance of Commercial Banks in Kenya,(Unpublished MBA project), University of Nairobi, Kenya
Marozva, G. (2016). Liquidity And Bank Performance. International Journal of Economics and Business Research, 453-462.
Mbonyane, B. L (2006).An Exploration of Factors that lead to Failure of Small businesses in the Kagiso Township. Mini- Dissertation submitted in partial fulfillment of the requirement for the Magister Technologiae Business Administration, College of Economics and Management Sciences.
McKillop, D. G. & Wilson, J. O. (2015). Credit Unions as Cooperative Institutions: Distinctiveness, Performance and Prospects. Social and Environmental Accountability Journal, 35, 96-112
Modigliani, F& Miller, M.H. (1950).The cost of capital, corporate finance and the theory of investment, American economic survey. vol. 48
Muchemi, A (2005). Financial Practice as a Determinant of Growth of Savings and credit Co-Operative Societies, International Journal of Business and Social Science, 3. 2): 67-80.
Mugenda, O. M., &Mugenda, A. G.( (2003), Research design and Methodology, Acts Press, Nairobi.
Muriithi, J. G., &Waweru, K. M. (2017).Liquidity Risk and Financial Performance of Commercial Banks in Kenya. International Journal of Economics and Finance, 256-265.
Mutebi, M (2002). Corporate Governance in Co-operatives: The East African Experience conf.Pan-African consultative forum on Corporate Governance, Senegal.
Mwangi, M. N (2014).The Effects of Liquidity on Financial Performance of Deposit Taking Microfinance Institutions in Kenya. International Journal of Business and Economics, 141-146.
Ngaira, L (2011). The impact of SACCO regulatory authority guidelines on SACCO operations in Kenya: The case of Nairobi deposit taking SACCOs. Unpublished MBA project).University of Nairobi.
Nyabate , N (2015).A survey of the use of financial performance indicators by SACCOS in Kenya, An unpublished MBA Thesis, University of Nairobi
Njeru (2016).Effect of liquidity management on financial performance of deposit taking saving and credit cooperative society in Kenya. PhD Thesis, Jomo Kenyatta University of Agriculture and Technology
Odunga, R. M., Nyangweso, P. M., Carter, D. A., &Mwarumba, M. (2013). Credit Risk, Capital Adequacy and Operating Efficiency Of Commercial Banks in Kenya”. International Journal of Business and Management Invention, 2(9).
Olando, C., Jagongo A., &Mbewa M., (2013).The contribution of SACCO financial stewardship to growth of SACCOS in Kenya.International Journal of humanities and social sciences, 3(17),1.
Ongaki,B. K., (2014). Determinant of profitability of Deposit taking Micro-finance Institutions and cooperative Societies that have front office service activities registered with SASRA. Unpublished MBA thesis, University of Nairobi.
Opala,J.O., (2014). Effect of financial stability on the performance of deposit taking SACCOs in Nairobi County.Unpublished MBA thesis, University of Nairobi.
Pollet, I (2013). Cooperatives in Africa: The age of reconstruction – synthesis of a survey in nine African Countries, Coop AFRICA Working Paper No. 7, International Labour Organization.
Pratomo, W.A. and Ismail A.G., (2006). Islamic Bank Performance and Capital Structure University Library of Munich, Germany, MPRA ,6012
SACCOs Review, (2012). Ministry of Co-operative Development and Marketing, Nairobi
Saeed,M.M., Gull A.A., &Rasheed M. Y. (2013). Impact of Capital Structureon Banking performance (case study of Pakistan), Interdisciplinary Journal of contemporary Research in Business, 4(10).
Saona, P. (2010). Capital Structure and Performance in the US Banking Industry. Available at SSRN 1617830.
SASRA (2017).An annual report on the operations and performance of Deposit-Taking Sacco Societies (DT-SACCOs) in Kenya.SACCOs Societies Regulatory Authority. Nairobi, Kenya:
SASRA (2016).Deposit Taking SACCOs Licensed by the SACCOs Societies Regulatory Authority. Nairobi, Kenya: SASRA.
Saunders, M., Lewis, P. & Thornhill, A. (2012). Research methods for business students (6th ed.). Harlow: Pearson.
Shafana, M. (2015). Liquidity and Profitability of Financial Institutions in Sri Lanka, International Journal of Science and Research, 4(6), 589-593.
Song’e, H. K. (2015). The Effect of Liquidity Management on the Financial Performance of Deposit Taking SACCOs in Nairobi County.Unpublished MBA Project), University of Nairobi, Kenya.
Thachappilly, G. (2011). Business Management.Print.inc.
Venkatesh, P and Bala, R (2013).Debt Collection Agencies and the Supply of Consumer Credit.Bocconi University, Research Department, Federal Reserve Bank of Philadelphia.
Wright, G..A.N. 2000. A critical Review of Savings Services in Africa and Elsewhere. Nairobi, Kenya.
DOI: http://dx.doi.org/10.61426/sjbcm.v6i1.1093
Refbacks
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution 3.0 License.
PAST ISSUES:
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.