Effect of Credit Risk Management on Financial Performance of Deposit Taking Saving and Credit Co-operatives Societies in Kenya.

Abstract

Effective Credit risk management enhances financial performance of credit and saving society. A sound Sacco sub sector enhances economic development. There are several challenges and risk facing this sector and credit risk is among them. This means that effective credit risk management is vital for better financial performance. This study focused credit risk management and its effect on performance of deposit taking SACCOs within Kenya. The study adopted a descriptive research design; both primary and secondary data were correlated, coded and used. Regression model was developed to show the variables relationship. Quantitative data was tabulated for analysis through descriptive statistics such as frequency counts and percentages. The research findings revealed a positive relationship linking the independent variables (credit risk management practices) and dependent variable (financial performance) of DTS in Kenya. 50.7% of financial performance was explained by credit risk parameters. The findings and conclusion, the researcher recommends that Deposit taking Sacco’s should enhance credit management practices such as credit scoring mechanism, standardized and transparent insider lending and credit risk monitoring. In addition, the sample size can be increased for further research to ascertain whether the current results will change. Other areas which can be investigated are other types of risk such as market risk and liquidity risk.