Effect of Credit Risk Management Practice on Financial Performance of Deposit Taking Savings and Credit Coopratives in Mombasa County, Kenya

Abstract

This study was conducted to find out the connection in credit risk management practice and financial performance of Sacco’s in Mombasa County, Kenya. The main objective was to find out the effect of credit risk management practice in financial performance of deposit taking Sacco’s. The research design which was used for this study was descriptive design. Research was based on 18 Sacco’s in Mombasa County whose performance was analyzed for a period of two years from 2014 to 2015. Information for this study was ancillary data collected from Sacco’s and regulator websites. Data was obtained from financial statements of the Sacco’s and was explored using multiple regression analysis, to establish the effect of credit risk management practice in financial performance of Sacco’s. Data was evaluated using descriptive statistics by Microsoft excel and SPSS. It was noted that, there was a positive correlation among credit risk management practice and financial performance. The four independent variables had positive coefficient indicating that an increase in credit policy, credit appraisal, monitoring and restrictive covenant and credit collateral and agreement result to increase in financial performance. This study recommends that, Sacco’s should commit resources in credit policy since it has shown that it is affecting the financial performance positively. The study also recommend that the Sacco’s should devote on credit appraisal by knowing their buyer. Monitoring and restrictive covenants and credit collateral agreements in the study is evidenced that the Sacco’s should evaluate the capacity of their client to pay back the obligations when it falls due. Further, the study recommends that SASRA should offer an atmosphere where the Sacco processes are not hampered with. For example, Central Bank should ensure steadiness of interest rates so as to encourage lending.