Effect Of Sacco Prudential Practices On Perfomance Of Deposit Taking Savings And Credit Co-Operative Societies Licensed To Operate In Kisumu County, Kenya

ABSTRACT

The Savings and Credit Cooperatives sub-sector is a key player in the provision of financial services to Kenyans. Over the years, the Sacco‟s have expanded significantly and currently even offer Front office Savings (FOSA). This rapid growth has not been devoid of SACCOs facing such challenges as illiquidity, capital inadequacy, poor credit management, losses, reduced profitability; loss of members to banks and low confidence among members. SACCO prudential practices aim at curing these stated problems. All Deposit Taking (DT)-SACCOs require compliance with these practices to improve their performance. Evidence reveals that performance of DT-SACCOs in Kenya in terms of profitability continued to decline from the year 2012 to 2017; while the challenges meant to be cured by prudential practices were still prevalent in most SACCOs; signifying continued decline of performance. In Kisumu County, a few SACCOs have been able to meet the minimum requirements of the prudential practices, locking out majority of SACCOs from operating FOSA business to improve their performance. Despite having 56 SACCOs, only 11 SACCOs had been able to meet the minimum prudential practices by 2018. The purpose of the study was to establish the effect of SACCO prudential practices on performance of DT-SACCOs licensed to operate in Kisumu County. Specifically, the study sought to establish if Capitalization; Liquidity management and Capital adequacy had any significant influence on the performance of DT-SACCOs in Kisumu County. The study was guided by the SACCO Theories and the Market power Theory. The study employed correlational research design. The target population for the study was 66 senior and middle level management staff of all DT-SACCOs licensed to operate in Kisumu County who included Chief Executive Officers (CEOs); Deputy Chief Executive Offices; Finance Managers; Fosa Managers; credit Managers and Internal Auditors. A structured questionnaire was used to collect primary data for the study from the respondents on both independent and dependent variables. For reliability, pilot study was used to pretest and Cronbach's alpha was used to measure internal consistency, while content validity technique was used in validating the research data. Data was analyzed using both descriptive, correlation and regression methods. From the findings, capitalization practices (β = 0.623, p=0.000