Loan Administration And Financial Performance Of Savings And Credit Co-Operative Societies In Kirinyaga County, Kenya

ABSTRACT

Thisresearch project was done with an aim ofdetermining the relationshipbetween loan

administration andfinancial performance of SACCOs in Kirinyaga County.Financial

performance is the main objective for organizations when choosinginvestment channels from a

number of availableopportunities the investigation was geared to improve the same. Studies have

shown that poor financial performance in organizations has led them to have failure in meeting

their financial obligations which has threatened their sustainability. Financial performance of

SACCOs in Kirinyaga County has been wanting in the last few years. The performance has been

recording a declining trend from 2011 which was at 15% to 2015 which was at 14.5%. As the

core business of SACCOs is to mobilize member savings then give loans to these members.

Financial performance of SACCOs is only achievable if loan administration is effective. A good

mix of loan products which are disbursed to members after undergoing proper appraisal process

can enhance financial performance if close monitoring and adequate loan security are in place. It

is against this background that this study was to assess loan administration as a factor

determining financial performance with theaim of establishing the condition for social and

financialenhancement. The key objectives were to determine the effect of loan product

management, to establish the effect of loan lending, to investigate the effect of loan monitoring

and to assess the effect of security administration in relation to financial performance of

SACCOs in Kirinyaga County in Kenya. Various theories were incorporated in this study with a

view to emphasize on some of the scholars principles. Transaction cost theory establishes the

need for qualified staff in the SACCO to minimize cost. Agency theory which defines the

boundaries between ownership and stewardship and Portfolio theory establishes how different

loan products enhance financial performance. Some of relevant studies carried out by other

researchers were incorporated in this study as a way to get the research gap.The research design

used was descriptive design for soliciting information relevant for the determination of financial

performance of the SACCOs’ anddata collected from a census of 36 SACCOs.Purposive

sampling of 108 respondents three from each of the target population of SACCO in Kirinyaga

County using questionnaires was instituted. Data was sorted using descriptive analysis such as

standard deviation, multiple regression analysis,mean and correlation coefficient. The study

findings were presented in form of tables, charts and also percentages. The mean and standard

deviation reflected in study indicated very smaller variations in loan administration and financial

performance hence high degree of agreement. The regression equation used in the study revealed

that financial performance of the SACCOs in Kirinyaga County in Kenya was influenced by loan

administration to a tune of 0.837 or 83.7% while 17.3% was due to other factors. The study also

further revealed that there was a strong positive correlation between loan administration and

financial performance. The results showed that the four independent variables studied had strong

positive correlation coefficients where loan product management had B of 0.002and p-value of

0.014, loan lending had a B of 0.001 and p-value of 0.001, loan monitoring had a B of 0.003 and

p-value of 0.022 and loan security management had a B of 0.004 and p-value of 0.000 all of

which were less than the significance level of 0.05. The recommendations of this study were that

SACCOs should have clear set loan products which should follow effective lending policy to

enhance financial performance. There should also be clear set loan monitoring procedure and

adequate charging and valuation of set loan security to facilitate smooth realization process if

need be.