Effect of loan-loss provisioning on financial performance of deposit taking SACCOs in Kirinyaga County, Kenya
DOI:
https://doi.org/10.20525/ijrbs.v13i5.3399Keywords:
Loan Loss Provisioning, Performance, Deposit Taking SACCOs, Kirinyaga CountyAbstract
Savings and Credit Co-operatives in Kenya are required to adhere to regulations set by the SACCOs Regulation Authority. Among the regulations is the requirement that the management has to present a myriad of reports including; the Capital Adequacy Return report, Liquidity Statement report, Statement of Financial Position and Statement of Deposit Return. The Return on Investments report compares land, building, and financial assets to SACCO's total assets and its core capital. Despite the existence of prudential guidelines, their influence on the financial performance of deposit-taking SACCOs in Kenya remains contentious with some claiming regulatory compliance in the form of SASRA prudential guidelines has a positive influence while others argue that SASRA regulation has insignificant influence on the financial performance of deposit taking SACCOs. This study seeks to determine the effect of loan-loss provisioning on the financial performance of Deposit-taking SACCOs in Kirinyaga County, Kenya. The study adopted a cross-section descriptive research design. The study population was 10 deposit-taking SACCOs in Kirinyaga County over the period 2017-2022 relying on secondary data. Data analysis involved descriptive and inferential statistics. From the inferential results, the study concluded that loan-loss provisioning positively and significantly affected the financial performance of the deposit-taking SACCOs in Kirinyaga County. The study recommended that the deposit-taking SACCOs in Kirinyaga County ought to strive to be capital-adequate as well as manage their loans efficiently. Being capital-adequate ensures that the SACCOs can expand their operations and hence be sustainable, competitive, and finally profitable. Managing its loans through periodic classification of the loans and having room for loan loss provision ensures the sustainability of the SACCOs.
Downloads
References
Amin, W., Qin, F., Rauf, A., & Ahmad, F. (2018). Effect of regulations on financial performance and outreach of MFIs. Public Finance Quarterly, 63(3), 345. https://unipub.lib.uni-corvinus.hu/8732/
Buluma, F. C. O., Kung’u, J., & Mungai, F. N. (2017). Effect of SASRA regulations on financial performance of Nyandarua County’s deposit taking SACCOs in Kenya. International Journal of Economics, Commerce and Management, 5(7), 614-636. https://www.academia.edu/download/53874461/my_publication.pdf
Cantwell, P. (2008). Census. In P. J. Lavrakas (Ed.), Encyclopedia of survey research methods (pp. 91-93). Sage Publications, Inc., https://dx.doi.org/10.4135/9781412963947.n61. DOI: https://doi.org/10.4135/9781412963947.n61
Chepkutwo, D., Jagongo, A., & Okech, T. (2019). Impact of CBK Prudential Guidelines on MFI Operations in Kenya. International journal of management and Commerce Innovations, 7(1), 224-231. http://dx.doi.org/10.61426/sjbcm.v11i2.2913 DOI: https://doi.org/10.61426/sjbcm.v11i2.2913
De Massis, A., Fini, R., Wright, M., Siegel, D., & Prescott, J. E. (2020). Call for Papers for a Special Issue Organizational Goals, Firm Outcomes and the Assessment of Performance: Reconceptualizing Success in Management Studies. Journal of Management Studies, 16(1), 1-6. http://www.socadms.org.uk/wp-content/uploads/JMS-SI-Call-Organizational-Goals-2.pdf
Ekaningtias, D., & Shonhadji, N. (2017). Effect Of Loan Loss Provision, Number Of Credits Given And Foreign Ownership On Corporate Financial Performance Pendapatan Asli Daerah Kota Surabaya. International Journal of Economic Research, 14(13), 401-407. https://www.researchgate.net/profile/Nanang-Shonhadji/publication/352292558_Effect_of_Loan_Loss_Provision_Number_of_Credits_Given_and_Foreign_Ownership_on_Corporate_Financial_Performance/links/60c22d9292851ca6f8db2401/Effect-of-Loan-Loss-Provision-Number-of-Credits-Given-and-Foreign-Ownership-on-Corporate-Financial-Performance.pdf
Gitonga, J. K. (2014). The effect of loan loss provisioning on profitability of deposit taking SACCO societies in Nairobi County (Doctoral dissertation, University of Nairobi). http://erepository.uonbi.ac.ke/handle/11295/76633.
Government of Kenya (2008). The SACCO societies Act, 2008. Nairobi: Government Printer. http://kenyalaw.org/kl/fileadmin/pdfdownloads/Acts/SaccoSocietiesAct_No14of2008.pdf
Hadizatou, A. (2021). Regulatory Framework and Microfinance Institutions’ Performance within the West African Monetary Union. AERC Research Paper 434 African Economic Research Consortium, Nairobi. https://publication.aercafricalibrary.org/handle/123456789/1979
Hailiang, L., Ramzani, S. R., & Long, H. C. (2020). Antecedents of firm’s performance: A conceptual model. International Journal of Emerging Trends in Social Sciences, 8(1), 25-32. https://doi.org/10.20448/2001.81.25.32 DOI: https://doi.org/10.20448/2001.81.25.32
Kayembe, H., Lin, Y., Munthali, G. N. C., Xuelian, W., Banda, L. O. L., Dzimbiri, M. N. W., & Mbughi, C. (2021). Factors affecting the sustainability of microfinance institutions: a case of Malawi microfinance institutions. Journal of Financial Risk Management, 10, 117-134. https://doi.org/10.4236/jfrm.2021.102007 DOI: https://doi.org/10.4236/jfrm.2021.102007
Khan, J. A. (2018). Research Methodology. New Delhi. APH Publishing Corporation. https://books.google.co.ke/books/about/Research_Methodology.html?id=8FPMP7vIFtMC
Kibue, V. M. W., Mang’ana, R. (2022). Influence of corporate governance practices on performance of savings and credit cooperative societies in the central region of Kenya. International Academic Journal of Human Resource and Business Administration, 4(1), 268-273. http://iajournals.org/articles/iajhrba_v4_i1_268_273.pdf
Magomere, F. A., & Otinga, H. N. (2019). Effect of loan loss provisioning, capital adequacy and cost of operations on financial performance of micro finance institutions in Kakamega County, Kenya. The Strategic Journal of Business & Change Management, 6 (1), 200 – 219. http://www.strategicjournals.com/index.php/journal/article/view/1052/0 DOI: https://doi.org/10.61426/sjbcm.v6i1.1052
Markowitz H. M. (1959). Portfolio Selection: Efficient Diversification of Investments. John Wiley & Sons, New York. https://www.scirp.org/reference/referencespapers?referenceid=1393507
Markowitz, H. M. (2009). Modern Portfolio Theory, Financial Engineering, and Their Roles in Financial Crises. In CFA Institute Conference Proceedings Quarterly 26(4), 1-6. CFA Institute. https://doi.org/10.2469/cp.v26.n4.6 DOI: https://doi.org/10.2469/cp.v26.n4.6
Mbuko, J. M., Waweru, G., & Shano, M. (2022). Effectiveness of licensing regulations on growth of deposit taking savings and credit co-operatives in mt. kenya region. International Journal of Advanced Economics, 4(9), 199-207. https://doi.org/10.51594/ijae.v4i9.427 DOI: https://doi.org/10.51594/ijae.v4i9.427
Miano, A., & Gitonga, E. (2020). The Effect of Corporate Governance Practices on Performance of Deposit Taking Savings and Credit Cooperative Societies in Kiambu County, Kenya. International Journal of Business Management, Entrepreneurship and Innovation, 2(2), PP 64- 81. https://doi.org/10.35942/jbmed.v2i2.118 DOI: https://doi.org/10.35942/jbmed.v2i2.118
Ministry of Finance, Planning and Economic Development, Uganda (2019). Uganda Microfinance Regulatory Authority. Available at https://www.finance.go.ug/content/uganda-microfinance-regulatory-authority.
Mustafa, A. R., Ansari, R. H., & Younis, M. U. (2019). Does the loan loss provision affect the banking profitability in case of Pakistan?. Asian Economic and Financial Review, 2(7), 772-783. https://www.researchgate.net/profile/Ahmed-Raza-Ul-Mustafa/publication/330244264_Does_the_Loan_Loss_Provision_affect_the_Banking_profitability_in_case_of_Pakistan/links/5c35b8a8458515a4c7179e9f/Does-the-Loan-Loss-Provision-affect-the-Banking-profitability-in-case-of-Pakistan.pdf
Mutinda, C. M. (2016). Impact of prudential regulatory framework on financial performance of deposit taking SACCOs in Kenya (Masters dissertation). https://repository.seku.ac.ke/handle/123456789/1906
Mutinda, N. D., & Ombati, R. M. (2018). Influence of Liquidity Management Regulatory Standards on the Financial Performance of Deposit Taking Saccos in Kenya. International Journal of Business Management & Economic Research, 9(6), 1510-1580. https://www.ijbmer.com/docs/volumes/vol9issue6/ijbmer2018090607.pdf
Nkurunziza, G., Munene, J., Ntayi, J., & Kaberuka, W. (2019). Business process reengineering in developing economies: Lessons from microfinance institutions (MFIs) in Uganda. Innovation & Management Review, 16(2), 118-142. https://doi.org/10.1108/INMR-03-2018-0010 DOI: https://doi.org/10.1108/INMR-03-2018-0010
Omino, G. (2005). Regulation and supervision of Microfinance Institutions in Kenya. Central bank of Kenya. Available at https://www.findevgateway.org/sites/default/files/publications/files/mfg-en-paper-regulation-and-supervision-of-microfinance-institutions-in-kenya-mar-2005.pdf. Accessed on 18th April 2023.
Omisore, I., Yusuf, M., & Christopher, N. (2011). The modern portfolio theory as an investment decision tool. Journal of Accounting and Taxation, 4(2), 19-28. https://doi.org/10.5897/JAT11.036 DOI: https://doi.org/10.5897/JAT11.036
Omwanza, C. O. & Jagongo, A. (2019). Financial innovations and financial performance of microfinance institutions in Kenya: A theoretical review. International Academic Journal of Economics and Finance, 3(4), 32-46. https://iajournals.org/articles/iajef_v3_i4_32_46.pdf
Pelealu, I. W., & Worang, F. G. (2017). Analysis The Effect Of Loan Loss Provision On Bank Profitability. Jurnal EMBA: Jurnal Riset Ekonomi, Manajemen, Bisnis dan Akuntansi, 6(4), 3278-3287. https://ejournal.unsrat.ac.id/index.php/emba/article/view/21317
Pop, C., & Buys, P. (2015). Microfinance In Romania. Contemporary Legal & Economic Issues, (5). https://www.pravos.unios.hr/wp-content/uploads/2022/03/contemporary-legal-and-economic-issues-v.pdf#page=307
Qamar, A., & Asif, S. (2016). Performance management: A roadmap for developing implementing and evaluating performance management systems. South Asian Journal of Management, 23(2), 150. https://search.proquest.com/openview/4608b431427fdb5455ef5dd69643ac67/1?pq-origsite=gscholar&cbl=46967
Rahman, M. W., & Luo, J. (2019). Regulation of microfinance service provider in China and Bangladesh: An approach to strengthening the regulatory environment. African Journal of Business Management, 6(3), 1019-1033. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1998510
Remer, L., & Kattilakoski, H. (2021). Microfinance institutions’ operational self-sufficiency in sub-Saharan Africa: empirical evidence. International Journal of corporate social responsibility, 6(1), 1-12. https://doi.org/10.1186/s40991-021-00059-5 DOI: https://doi.org/10.1186/s40991-021-00059-5
Republic of Kenya (2019). The Sacco Societies Act No. 14 Of 2008. Available at https://www.sasra.go.ke/download/the-sacco-societies-act/. Accessed on 10th March 2023.
Ruesta, C., & Benaglio, N. (2020). Microcredit regulation in Europe: An overview. European Microfinance Network, 3. https://www.european-microfinance.org/sites/default/files/document/file/Microcredit_regulation_in_Europe_An_overview_2020_FINAL.pdf
SACCOS Societies Act (2020). The SACCO Societies (Non-Deposit Taking Business) Regulations, 2020. Available at https://www.sasra.go.ke/download/sacco-societies-non-deposit-taking-business-regulations-2020/. Accessed on 18th April 2023.
SASRA (2022). SACCO Societies Regulatory Authority’s 2018 – 2022 Strategic Plan. Available at https://www.sasra.go.ke/download/strategic-plan-2018-2022/. Accessed o 21-08-2022.
Sirucek, M., & K?en, L. (2015). Application of Markowitz Portfolio Theory by Building Optimal Portfolio on the US Stock Market. University Library of Munich, Germany. https://doi.org/10.11118/actaun201563041375 DOI: https://doi.org/10.11118/actaun201563041375
Taouab, O., & Issor, Z. (2019). Firm performance: Definition and measurement models. European Scientific Journal, 15(1), 93-106. https://doi.org/10.19044/esj.2019.v15n1p93 DOI: https://doi.org/10.19044/esj.2019.v15n1p93
Tudose, M. B., Rusu, V. D., & Avasilcai, S. (2022). Financial performance–determinants and interdependencies between measurement indicators. Business, Management and Economics Engineering, 20(1), 119-138. https://doi.org/10.3846/bmee.2022.16732 DOI: https://doi.org/10.3846/bmee.2022.16732
Ussif, R. & Ertu?rul, M. (2020). Impact Of Regulations And Policies On Microfinance Sector Development In Ghana. North American Academic Research 3(2), 509-542. https://www.academia.edu/download/114393911/17._20_20509_20_20-542to_20author_20-_20Copy_20corrected_201.pdf
Zulfikar, Z., & Sri, W. (2019). The impact of discretionary loan loss provision of sharia financing on financial performance. Banks and Bank Systems, 14(4), 34-41. https://doi.org/10.21511/bbs.14(4).2019.04 DOI: https://doi.org/10.21511/bbs.14(4).2019.04
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Moses Migwi Maina , Richard Kiai , Joseph Muchiri
This work is licensed under a Creative Commons Attribution 4.0 International License.
For all articles published in IJRBS, copyright is retained by the authors. Articles are licensed under an open access Creative Commons CC BY 4.0 license, meaning that anyone may download and read the paper for free. In addition, the article may be reused and quoted provided that the original published version is cited. These conditions allow for maximum use and exposure of the work, while ensuring that the authors receive proper credit.
