The effect of credit rating policies on the loan uptake in savings and credit co-operatives (SACCOS) in Nairobi county

Abstract

SACCOs that have adopted effective rating policies have realized significant increases in the loan uptake, reduction in loan default and efficient delivery of timely information to their members and increased total lending. The objective of this study was to establish the effect of credit rating policies on loan uptake in SACCOs in Nairobi County. This was an explanatory study where the research sought to establish a relationship between the use of credit rating policies and the loan uptake in the SACCOs in Nairobi County. A census survey was conducted involving 30 SACCOs within Nairobi County registered and licensed under the Co-operatives Act of 1997. This study used primary data that was collected from the respondents of the survey. Data was captured and analyzed using Statistical Package for the Social Sciences (SPSS) version 20. Regression analysis was used to determine the relationship between rating policies and the loan uptake. The study concludes that there is a relationship between rating policies adopted by each Sacco in Nairobi County. The benefits gained from the use of effective credit rating policies include accuracy in the decision making process. This accuracy leads to better assessments and effective use of reliable data thus reducing judgment based on humanitarian and behavioral factors thus providing better decision making. The study recommends that SACCOs should effectively create systems that gather, correlate data concerning their membership and factually assess their membership applications without prejudice. This in turn improves the credit scoring of individual members. The SACCOs are also encouraged to regularly review their lending policies so that member’s funds are not exposed to fraudulent activities