Effect of Covid-19 Pandemic on Performance of Deposit- Taking Saccos in Kenya

Abstract

The COVID-19 pandemic's impact on the Kenyan economy was felt from March 2020 when containment measures like a ban on public gatherings, and lockdowns were implemented by the government. This study sought to establish the effect of COVID-19 on the performance of deposit-taking SACCOs in Kenya, as measured by the Return on Assets (ROA). Specifically, the study sought to assess the impact on capital adequacy, scale and outreach, and leverage. The researcher used a descriptive research design with a sample of 40 SACCOs. The researcher collected secondary data from individual financial reports as provided by the SACCOs and SASRA Reports. The study adopted an event-study methodology which included four years from 2018 to 2021. The event methodology included two years before the COVID-19 pandemic and two years after the COVID-19 pandemic. The data was collected to compute the four variables based on financial parameters, like the number of members, total equity, total assets, profit after tax, number of employees, and total debt. The data collected were analyzed using SPSS version 25 and descriptive and inferential statistics were used for analysis. The researcher checked the performance of the SACCOs pre and post COVID-19 and a comparison done to establish if COVID-19 had a significant impact on the performance of the Kenyan Deposit-Taking SACCOs. The research study findings showed that mean profitability, as measured by return on assets, declined post-COVID-19. The SACCOs had a higher leverage ratio post-pandemic, while the capital adequacy reduced following the pandemic. The scale and outreach ratios were adversely affected by the pandemic. Concerning the significance of the predictor variables, the regression analysis showed that capital adequacy had the most significant effect on the SACCOs’ return on assets post-pandemic. The ANOVA results also showed that the F-statistic was greater than the F-critical at 5% significance (p=0.000) indicating that the regression model used was suitable to determine if COVID-19 impacted the financial performance of Kenyan SACCOs. The paired t-test showed that only financial leverage had a statistically significant difference in the mean performance before and after COVID-19 pandemic (t (39) =2.524, P<0.005). Based on these findings, this study recommends that the government should prioritize SACCOs in their financial deepening policy plans and work with SACCO management to improve SACCOs’ scale and outreach. The study recommends that SACCOs establish innovative plans on how to improve their equity to prevent over-reliance on debt that can further worsen the leverage and capital adequacy situations.