The effect of credit risk management practices on financial performance of savings and credit cooperative societies in kisumu county, kenya
Musimbi, Ebby W
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This study was conducted to establish whether there was a relationship between credit risk management practices and the financial performance of SACCOs in Kisumu County, Kenya. The objective was to determine the effect of credit risk management practices on the financial performance of SACCOs in Kisumu County, Kenya. The Cross-sectional survey design was used for the study. The research was based on all the SACCOs in Kisumu County whose performance was analyzed for the three-year period from 2011 to 2013. Secondary data was obtained from the office of the Commissioner for Cooperative Development and the Kenya Union of Savings and Credit Cooperative Societies. The data collected included the respective SACCOs’ income, total assets, total loans, non-performing loans, total expenses, loan insurance expenses, current assets and current liabilities. Data analysis was done using multiple regression analysis with the regression output being obtained using the Statistical Package for Social Sciences (SPSS). The findings of the study revealed a positive relationship between credit risk management practices and financial performance. The two independent variables had positive coefficients indicating that increase in Loan Insurance cost ratio and liquidity ratio would result in an increase in Return on Assets. The conclusion was that effective management of credit risk by SACCOS would improve their performance hence the need to select appropriate practices to suit their conditions. The study recommends that SACCOs should explore increased and consistent application of credit risk mitigation measures including insurance, 7c’s of credit appraisal, credit committees and regular review of their credit policies. In addition, adequate provision should be made for bad debts to avoid overstatement of their Income. The Government should also review their enforcement mechanisms on the requirement for SACCOs to file their financial returns with the Commissioner for Cooperative development to ensure prompt detection of problems and implementation of measures to safeguard members’ deposits.
University of Nairobi