The Effect of Liquidity on the Return on Investments for Saccos in Nairobi
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Date
2014-11Author
Kabure, Muraguri J
Type
ThesisLanguage
enMetadata
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The coming into force of the SASRA regulations in Kenya changed the way deposit-taking
Saccos managed their business. Capital adequacy requirements and liquidity thresholds were
introduced. To meet these requirements, Saccos had to reduce on the interest rebates to their
members while also retaining more to build on their institutional capital. This study’s main
objective was to establish the effect that liquidity has on the investments in the deposit-taking
Saccos in Nairobi. It also looked at how this liquidity was related to other variables such as
capital adequacy and management efficiency. It also looked at whether capital adequacy and
management efficiency had a role to play in the investments of these Saccos.The study applied a
descriptive analysis approach usingregression analysis to analyse the data collected. A random
sample from the population of SASRA licensed Saccos in Nairobi was taken and secondary
financial data collected for the Saccos in this sample. A linear regression model of the returns on
investments versus liquidity and capital adequacy was used to test the relationship between the
variables.The study found that liquidity had a positive impact on the return on investments in the
Saccos while capital adequacy had a negative influence on the returns. Given thispositive effect
of liquidity on the returns in investment, the study recommends that the regulations regarding
management of liquidity in the deposit-taking Saccos be reviewed to allow the Saccos diversify
their investments in high earning portfolios such as listed companies. In addition the study
recommends that a central depository fund for Saccos be set up to help Saccos have a cheaper
avenue for short term borrowing to help address seasonal liquidity challenges. The study also
recommends that the taxation laws regarding withholding tax in financial institutions be clearly
expounded to protect the Saccos from double taxation when they put their funds in term deposits
with banks.
Citation
Degree Of Master Of Science In Finance,2014Publisher
University Of Nairobi