The effects of loan repayment on financial performance of Savings and credit cooperative societies; a case study of good Hope sacco, narok town

Abstract

This research was conducted with the purpose of establishing the effects of loan repayment on the financial performance of the SACCOs. Lending is the act of granting someone, the use of something on the understanding that it shall be returned. According to Investopedia dictionary, lending can be understood where, someone makes funds available to another with the expectation that the funds will be repaid, plus any interest and/or fees. Savings and Credit Cooperative societies’ core business is mobilizing savings from members, and then providing them with credit at affordable interest rates. However SACCOs have received stiff competition from commercial banks, who have diversified their products. SACCOs on their side have increased their credit facilities through increasing the amount of loans they give to their members including rebranding their products. In revising their terms and increasing credit, SACCOs have been able to maintain their loyal members. The general objective of this study was to investigate the effect of loan repayment on the financial performance of the Savings and Credit Cooperative Societies. The specific objectives of the study were; to determine the effect of lending interest rate on loan repayment advanced to the SACCO members, to investigate whether the loan repayments has an effect on the profitability of the SACCOs in the banking sector, and finally, to investigate whether the deposit volume of the SACCOs can influence financial performance of the SACCOs in the banking sector. The research adopted a case study design. Data was collected from secondary sources. The literature reviewed, published financial statements and reports formed the basis of secondary data. Data was analyzed using descriptive statistics. The study used multiple linear regression analysis on secondary data. The following variables were entered in the regression: profitability, lending volume, loan repayment, lending interest rate and total deposit value. The study would be of benefit to the management of Savings and Credit Cooperative Societies since it highlighted the effect of the loan recoveries on the financial performance of the SACCOs. The researcher used secondary data. The data was collected from the SACCO financial statements and policies and partly from SASRA reports. The results of the research showed that lending interest rate was inversely related to the financial performance of the SACCO. The other variables showed a positive significant relationship with financial performance. Of all the determinants of financial performance, the deposits have a coefficient of 0.932 followed by total repayment coefficient of 0.803 and total loans and advances coefficient of 0.774. The lending interest rates had a coefficient of -0.888. The study thus recommends that the SACCOs should device better methods of recovering their loans as a means of improving the financial performance of the SACCOs. The study further called upon the government to intervene in the financial institutions operations by providing an equal plat form upon which the key players could compete. There is still need for further research on the topic to cover the areas not targeted by the research for a better operation of the SACCOs.