Effect Of Credit Risk Management Framework On Financial Performance Of Deposit Taking Savings And Credit Cooperatives In Kenya
Mulinge, Emmanuel K
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The type of business undertaken by SACCOs is so delicate due to the fact that 85 percent of their liabilities are deposits derived from the contribution of the member. Through deposit mobilization, members are able to acquire advances from the SACCO, which for the majority of SACCOs is the primary income-generating activity. This method of credit creation makes the SACCOs vulnerable which may lead to financial distress including insolvency. The Framework for credit risk management enables SACCOs to reduce their credit risk exposure by allowing them to compete in the marketplace with other reputable commercial entities such as banks. Therefore, it’s important to investigate the roles played by credit risk management framework in improving stakeholder value and financial position of SACCOs. The purpose of this study is to evaluate how the financial performance of SACCOs taking deposits in Kenya is affected by credit risk management. This research concentrated on parameters affecting the performance of SACCOs such as credit risk assessment, credit risk monitoring, and recovery processes. This research was guided by the following theories; theory of agency, stakeholder’s theory and the resource-based theory. The study targeted SACCO credit managers in the 166 registered deposit-taking SACCOs in Kenya. The study used a descriptive research design. Census was used where all units were engaged in collecting data. The research used primary collected using questionnaires. Field data were categorized and structured in accordance with study goals and analyzed using the Social Science Statistical Package (SPSS version 2.1). To show the association between the factors, the regression model was used. The research findings revealed a positive relationship linking credit risk appraisal, credit risk monitoring and credit recovery which were the independent variables to financial performance of deposit-taking SACCOs in Kenya. The study determined that 73.8% of SACCOs' financial performance was explained by credit risk management parameters. From the findings and conclusion, the researcher recommends that deposit-taking SACCOs should enhance credit management frameworks such as credit risk monitoring and credit risk appraisal to enhance financial performance. In addition, different types of financial institutions such as microfinance and banks can be used for further research to ascertain whether the current results will change. Other areas that can be investigated are other types of risks such as market risk, interest risk, and liquidity risk and there influence on financial performance.