The effect of regulation on financial performance of savings and credit cooperative societies (saccos) offering front office service activity (fosa) in Kenya

Abstract

This study was on the effect of regulation on financial performance of savings and credit cooperative societies (SACCOs) offering front office service activity (FOSA) in Kenya. The study used descriptive research design. A survey was done to establish the impact of regulation on the performance of FOSA SACCOs in Kenya. There are about 122 such SACCOs in Kenya of which a sample was taken using systematic random sampling. Data was collected by use of questionnaire method which had both structured and unstructured questions. It was analyzed mainly by use of descriptive statistics such as the charts and graphs measures of central tendency. In addition, an advanced statistical technique such as regression was also used. Following the study findings it was possible to conclude that the introduction of governance regulations had impacted positively on the financial performance of SACCOS. The specific governance practices that had a positive relationship with financial performance included; election of an independent board, the constitution of independent board committees, subjecting directors and senior management to vetting by SASRA and separation of the responsibilities of the board and the management. It was possible to conclude that introduction of prudential regulations had impacted positively on the financial performance of SACCOS. The specific prudential guidelines that had an effect on financial performance were; prudential regulation on capital adequacy, prudential regulations on the extent of external borrowing, prudential regulations on asset categorization and provisioning, prudential regulations on maximum loan size and prudential regulations on insider lending. It was possible to conclude that introduction of reporting regulations had impacted positively on the financial performance of SACCOS. The specific reporting guidelines that had an effect on financial performance were; monthly reporting to SASRA on capital adequacy liquidity and deposits, reporting on quarterly risk classification of assets and loan loss provisioning and investment returns and reporting on annual audited financial statements. The study recommended that the managers of the SACCOs to emphasize on prudential regulations, governance regulation and reporting regulations as doing so would improve the financial performance of SACCOs.