i EFFECTS OF SACCOS SOCIETIES REGULATORY AUTHORITY’S REGULATION ON THE FINANCIAL PERFORMANCE OF SACCOS IN ELDORET KENYA PRESENTED BY: PATRICIA MUGURE KAMAU REG/NO: CBP12/11339/15 A RESEARCH PROJECT SUBMITTED TO THE UNDERGRADUATE SCHOOL IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE CONFERMENT OF THE DEGREE OF BACHELOR IN COMMERCE FACULTY OF BUSINESS AND ECONOMICS KISII UNIVERSITY OCTOBER, 2017
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i
EFFECTS OF SACCOS SOCIETIES REGULATORY AUTHORITY’S REGULATION
ON THE FINANCIAL PERFORMANCE OF SACCOS IN ELDORET KENYA
PRESENTED BY:
PATRICIA MUGURE KAMAU
REG/NO: CBP12/11339/15
A RESEARCH PROJECT SUBMITTED TO THE UNDERGRADUATE SCHOOL IN
PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE CONFERMENT OF
THE DEGREE OF BACHELOR IN COMMERCE FACULTY OF BUSINESS AND
ECONOMICS
KISII UNIVERSITY
OCTOBER, 2017
ii
DECLARATION
Declaration by the candidate:
This project is my original work and has not been presented for a degree in any other University
…………………. …………………
Signature Date
PATRICIA MUGURE KAMAU
REG/NO: CBP12/11339/15
This project has been submitted for examination with my approval as University Supervisors
……………… ……………….
Signature Date
Engineer Akuku
Kisii University, Eldoret Campus
iii
DEDICATION
I dedicate this work to my wonderful family for the priceless support.
iv
ABSTRACT
This study aimed to determine the effects of SACCOs societies regulatory authority’s regulation
on the financial performance of SACCOs in Eldoret Kenya. The study was guided by the
following objectives; to determine the effect of minimum capital requirements on the financial
Performance of SACCOs in Eldoret, Kenya, to assess the effect of minimum liquidity
requirements on the financial Performance of SACCOs in Eldoret, Kenya, to find out the effect
of loan provisioning requirements on the financial Performance of SACCOs in Eldoret, Kenya
and to determine the effect of minimum investment requirements on the financial Performance of
SACCOs in Eldoret, Kenya. The study adopted a descriptive survey research design. The study
targeted employees from the finance department in 10 SACCOs within Eldoret, Uasin Gishu
County. The target population was 71 respondents. Census was used to collect data from the
entire population. Questionnaires were used as the main data collection tool. Data for this
research was both qualitative and quantitative. Qualitative data analysis involved the explanation
of information obtained from the literature. This was done through discussion and explanation of
study findings. Quantitative analysis was done for the numerical data obtained from the field.
This was done using descriptive statistics with the help of Microsoft version of Excel. Measures
of central tendency (mean) and measures of dispersion such as frequencies and percentages were
used. Graphs, tables and pie charts were used to represent the outcomes. The findings of the
study indicated that on the effect of minimum capital requirements on the financial Performance
of SACCOs in Eldoret, Kenya, the study found that the high minimum capital requirement has
limited the number of institutions that seek licensing as Saccos. On the effect of minimum
liquidity requirements on the financial Performance of SACCOs in Eldoret, Kenya, the study
found that the sacco has increased the amounts of deposits available for its depositors. This
therefore implies that since the firms are required to maintain a certain liquidity level, they On
the effect of loan provisioning requirements on the financial Performance of SACCOs in Eldoret,
Kenya, the study found that the Sacco has been able to formulate a loan provision requirement
that has enabled it to maximize on performance, The regulations that were stipulated enabled the
Saccos to come up with loan provision On the effect of minimum investment requirements on
the financial Performance of SACCOs in Eldoret, Kenya, the study found that T the Sacco has a
policy that regulates its investments made in line with SASRA regulation. On the performance of
the Saccos, the study cfound that the Sasra regulations affected the performance of the Saccos by
enabling them to increase their membership growth. Based on the findings of the study, the study
recommends that; the Sacco should employ the SASRA regulations to enable them to adequately
meet the core capital requirements; the sacco should strictly follow the sasra regulations which
will enable them to reduce the number of short term liabilities it offers in terms of loan. The
Sacco should utilize the Sasra regulation to to maximize on the number of total Loans. They can
use the policy guided by theregulations to enable them identify the most suitable clientele and
offer their services to potential clients who are assets and not bad debts. The saccos should
utilize the sasra regulations to formulate a policy that will enable them increase the assets of the
saccos and their shareholders.
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TABLE OF CONTENTS
DECLARATION........................................................................................................................... ii
DEDICATION.............................................................................................................................. iii
ABSTRACT .................................................................................................................................. iv
TABLE OF CONTENTS ............................................................................................................. v
LIST OF TABLES ....................................................................................................................... ix
LIST OF FIGURES ...................................................................................................................... x
ACRONYMS AND ABBREVIATIONS .................................................................................... xi
OPERATIONAL DEFINATION OF TERMS ........................................................................ xii
CHAPTER ONE ........................................................................................................................... 1
INTRODUCTION......................................................................................................................... 1
1.1 Background of the Study ....................................................................................................... 1
1.2 Problem Statement ................................................................................................................ 5
1.3 Objectives of the Study ......................................................................................................... 6
1.3.1 Main Objective................................................................................................................... 6
1.3.2 Specific Objective .............................................................................................................. 6
1.4 Research Questions ............................................................................................................... 6
1.5 Significance of the study ....................................................................................................... 7
1.7 Scope of the Study ................................................................................................................ 8
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1.8 Limitations of the Study........................................................................................................ 8
CHAPTER TWO ........................................................................................................................ 10
LITERATURE REVIEW .......................................................................................................... 10
2.1 Introduction ......................................................................................................................... 10
2.2 Theoretical Framework ....................................................................................................... 10
2.2.1 Liquidity and Regulation of Financial Intermediation Theory ........................................ 10
2.2.2 Public Interest Theory ...................................................................................................... 12
2.2.3 Agency Theory................................................................................................................. 14
2.3 SASRA Regulatory Framework ......................................................................................... 15
2.4 Financial Performance ........................................................................................................ 16
2.5 Conceptual Review ............................................................................................................. 17
2.5.1 Effect of Minimum Capital Requirements on the Financial Performance of Saccos ...... 17
2.5.2 Effect of Minimum Liquidity Requirements on the Financial Performance of Saccos ... 18
2.5.3 Effect of Loan Provisioning Requirements on the Financial Performance of Saccos ..... 19
2.5.4 Effect of Minimum Investment Requirements on the Financial Performance of Saccos 19
2.6 Past Studies ......................................................................................................................... 20
2.7 Critical Review ................................................................................................................... 27
2.8 Conceptual Framework ....................................................................................................... 28
CHAPTER THREE .................................................................................................................... 30
RESEARCH DESIGN AND METHODOLOGY .................................................................... 30
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3.1 Introduction ......................................................................................................................... 30
3.2 Research Design.................................................................................................................. 30
3.3 Description of Target Population ........................................................................................ 31
3.3 Sample and sampling Technique ........................................................................................ 31
3.4 Data Collection Instruments ............................................................................................ 32
3.5 Data Collection Procedures................................................................................................. 32
3.6 Validity and Reliability of the Research Instruments ......................................................... 33
3.6.1 Validity of Instruments .................................................................................................... 33
3.6.2 Reliability of Instruments ................................................................................................ 33
3.7 Data Analysis ...................................................................................................................... 33
3.9 Ethical Considerations ........................................................................................................ 34
CHAPTER FOUR ....................................................................................................................... 35
DATA ANALYSIS, PRESENTATION AND DISCUSSION ................................................. 35
4.0 Introduction ......................................................................................................................... 35
4.1 Demographic Information ................................................................................................... 35
4.2 Effect of Minimum Capital Requirements on the Financial Performance of SACCOs in
Eldoret, Kenya .......................................................................................................................... 38
4.3 Effect of Minimum Liquidity Requirements on the Financial Performance of SACCOs in
Eldoret, Kenya .......................................................................................................................... 40
Table 4.2 Minimum Liquidity Requirements and Financial Performance of SACCOs ........... 40
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4.4 Effect of Loan Provisioning Requirements on the Financial Performance of SACCOs in
Eldoret, Kenya .......................................................................................................................... 41
4.5 Effect of Minimum Investment Requirements on the Financial Performance of SACCOs in
Eldoret, Kenya .......................................................................................................................... 43
4.6 Financial Performance of SACCOs .................................................................................... 44
CHAPTER FIVE ........................................................................................................................ 46
SUMMARY CONCLUSIONS AND RECOMMENDATIONS ............................................. 46
5.0 Introduction ......................................................................................................................... 46
5.1 Summary of the Findings .................................................................................................... 46
5.2 Conclusions ......................................................................................................................... 48
5.3 Recommendations ............................................................................................................... 49
REFERENCES ............................................................................................................................ 51
APPENDICES ............................................................................................................................. 55
APPENDIX I: LETTER OF INTRODUCTION ..................................................................... 55
APPENDIX II: QUESTIONNAIRE ......................................................................................... 56
APPENDIX III: WORK PLAN ................................................................................................. 59
APPENDIX IV: RESEARCH BUDGET .................................................................................. 60
APPENDIX V: INTRODUCTORY LETTER FOR DATA COLLCETION ...................... 61
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LIST OF TABLES
Table 3.1 Target Population ...................................................................................................... 31
Table 4.1 Minimum Capital Requirements and Financial Performance of SACCOs .............. 39
Table 4.2 Minimum Liquidity Requirements and Financial Performance of SACCOs ........... 40
Table 4.3 Loan Provisioning Requirements and Financial Performance of SACCOs ............. 41
Table 4.4 Minimum Investment Requirements and Financial Performance of SACCOs ........ 43
Table 4.5 Financial Performance of SACCOs .......................................................................... 44
x
LIST OF FIGURES
Fig 2.1 Conceptual Framework................................................................................................. 29
Figure 4.1 Gender of the Respondents ...................................................................................... 37
Figure 4.2 Educational Level of the Respondents .................................................................... 37
Figure 4.3 Age of the Respondents ........................................................................................... 37
Figure 4.4 Experience of the Respondents ............................................................................... 38
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ACRONYMS AND ABBREVIATIONS
FOSA: Front Office Savings Activities
GDP: Gross Domestic Product
LPR: Loan Provisioning Requirement
MFIs: Micro finance institutions
SACCO’s: Savings and Credit Co-operatives
SASRA: Sacco Societies Regulatory Authority
WOCCU: World Council of Credit Unions
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OPERATIONAL DEFINATION OF TERMS
Capital Adequacy: Capital adequacy is a “measure of the financial strength of a
financial institution, usually expressed as a ratio of its capital to its
assets” (Saunders and Cornett, 2011, p. 612).
Capital: Capital refers “principally to the funds contributed by the owners
of a financial firm” (Rose and Hudgins, 2005, p.483)
Financial Performance: This is output terms of the achievement of quantified objectives.
For finance purposes these achievements are expressed in
monetary terms (Auslander, 2008)
Savings and Credit Cooperative Societies (SACCOs): Savings and Credit Co-operatives
(SACCOs) are “user-owned financial institutions that offer both
savings and credit services to their members” (Tache, 2006). They
are also referred to as credit unions in some parts of the world
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CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The Savings and Credit Co-operatives (SACCO) sector and MFIs have been of great interest to
regulators because of their rate of growth, opined on the fact that they offer cheap loans to
members. According to Mudibo (2005), the importance of regulations is to hedge against the
high risk attributed to imbalances in financial institutions balance sheets as they serve as
prudential measures that mitigate the effects of economic crises on the stability of the
financial institution system and subsequent accompanying macroeconomic results. Sound
regulation means the institutions are able to achieve objective of giving cheap loans, as
well as protecting member’s savings
According to Baskin et al. (2012), regulation is a supervision which subjects institutions to
certain requirements, restrictions and guidelines with the aim of maintaining integrity of the
financial system. The Regulations on Savings and Credit Cooperative Societies and credit
schemes in Africa engaged in accepting savings and deposits from their members for an amount
that is less than set minimum (WOCCU, 2002). SACCOs are also supposed to attain high
minimum capital requirements to act as a barrier to market entry to possible new players that are
not able to raise sufficient capital for the initial stages as a regulated institution. But, on the
other hand, a high 3minimum capital requirement could help to mitigate moral hazard
behavior among shareholders Beside banks, MFIs together with Savings and credit
cooperative societies are important suppliers of microfinance services to middle and low
income segments of the population that usually operate at a small scale in areas or with
sectors of the population not favored by banks and other financial institutions in the
2
provision of financial services. The first prudential standard is the minimum amount of liquid
capital that SACCOs should raise to entry the regulated market (Staschen, 2003). This
requirement is an absolute measure of solvency and is usually established by primary regulation.
Capital adequacy refers to a relative measure: it establishes the maximum level of leverage that a
financial institution is allowed to reach on its operations. It is measured by the ratio of risk-
weighted assets relative to regulatory equity, which has been internationally recommended to be
equal to 12.5 times, or commonly known as a capital adequacy ratio of 8% (Jansson, 1997).
Terence (1989) defines performance measurement as a way of ensuring that resources available
are used in the most efficient and effective way. The essence is to provide for the organization
the maximum return on the capital employed in the business. Financial performance for
SACCOs is very important because managers need to know how well the SACCOs are
performing. There are two major reasons as to why SACCOs should have financial performance
measurement (Johnson and Mark, 1997). The first one is to produce financial statements at
the right time. Secondly, financial statements should be analyzed to produce information
about the performance of the scheme, which must be used to improve that performance. Based
on WOCCU’s standards of measuring performance, the factors which determine the
performance of SACCOs include; asset base, Liabilities, Performance of the loan book,
corporate governance and the quality of staff and Regulations in the industry.
SACCOs in Kenya are required by law to have their financial statements audited at the end of the
fiscal year. Although most SACCOs comply with this requirement, financial statements are not
always available on a monthly basis. Moreover, the financial position of most SACCOs is
not accurately reported since many statements are not compliant with accepted accounting
practices. For transparency, SACCOs are supposed to provide timely financial updates to
3
their members and external auditors and they should be evaluated every three to five years
using a competitive bidding process. An independent and qualified external auditor assures
members and the general public about the authenticity of the SACCOs’ books of accounts.
SACCOs are required to comply with standards set by the regulatory body (McConnell, 2007).
Over the years, Kenyan SACCOs have catered for the needs of their membership.
However, SACCOs are facing competition from banks which is further compounded by
governance and financial management challenges. These issues have tainted the image of the
SACCO sector. The board is the overall governing authority of a SACCO consisting of elected
officials who oversee the running of the cooperative (WOCCU, 2009). While this process was
put in place to ensure members are empowered to run their SACCO, there are several
shortcomings related to this practice. Of concern is when elected officials are not necessarily
qualified to assume leadership positions and fiduciary responsibilities. This has contributed to a
myriad of problems which has seen many Kenyans lose their savings when their SACCOs
go bankrupt because of weak governance and financial management. This failing is further
complicated by the fact that the sector is not adequately regulated (FSD, 2009).
Some SACCOs in Kenya have adopted Front Office Services Activities (FOSA) to offer
the services they render to clients. FOSAs have proved to be one of the key profit
centers for SACCOs and members have appreciated the services offered by these FOSAs.
Through the full utilization of the FOSA network, SACCOs provide their members with
the full range of basic financial services and consolidate these services to the full
satisfaction of members. The introduction of FOSA has contributed positively to the
performance of SACCOs through improved profitability which has led to the declaration of a
high dividend rates to the members (IFSB, 2005).
4
The government of Kenya established The SACCOs Societies Regulatory Authority
(SASRA) under the Ministry of Cooperative Development and Marketing in an effort to
reform SACCOs and ensures that there is confidence in the public towards the SACCOs
sector and spurring Kenya’s economic growth through the mobilization of domestic
savings (Ministry of Cooperatives and Marketing, 2008).
According to the KGS (2009) for effective enforcement of the regulations, SASRA is
granted specific powers in law to deal with SACCOs societies that fail to comply. This is
imperative as compliance cannot be left at the discretion of the SACCOs. In addition to
financial capacity, licensing is testimony that a SACCO’s has the institutional capacity, in
terms of human, technology and business processes to comply with the terms and conditions
of the license. Thus failure to comply cannot be condoned as it will encourage impunity
(Kenya Gazette, 2008).
SASRA emphasizes that in accordance with vision 2030, the policy objective of
establishing prudential regulation of deposit taking SACCOs societies is to enhance
transparency and accountability in the SACCO subsector. This is consistent with the
ongoing reforms in the financial sector whose ultimate aim is to expand financial access,
encourage efficiency and enhance financial stability of financial service providers in
Kenya (IFSB 2010). SASRA recognizes that as a new law it is certain to bring
challenges and impact on the SACCOs
Societies in different ways and extent. It is the responsibility of the board of directors and
the management to analyze their business reality against the operational regulations and
prudential standards; and develop strategies through the business plans for consideration by
5
the Authority as part of the licensing process (Musyoki, 2008). This study aimed to determine
the effects of SACCOs societies regulatory authority’s regulation on the financial performance of
SACCOs in Eldoret Kenya.
1.2 Problem Statement
Recent economic crises in SACCOs have revealed the importance of regulations to hedge against
the high risk attributed to imbalances in SACCOs’ balance sheets. Nonetheless, excessive
regulations may have adverse effects. On the one hand, they serve as prudential measures
that mitigate the effects of economic crises on the stability of the banking system and
subsequent accompanying macroeconomic results. On the other hand, excessive regulations
may increase the cost of intermediation and reduce the profitability of the in credit unions
(Stiglitz, 2001).
The SASRA regulations came in against a backdrop of losses and compromised profitability,
loss of members to banks, incompetent staff and poor corporate governance. Kirkpatrick and
Tennant (2002) also opined that SACCOs represent one of the most important sources of
financing in developing countries and in the last few years, SACCOs have experienced
tremendous growth all over the world and the consequences of high related party
balances. Several scholars have looked at the role played by regulatory institutions and their
effects. Ooko (2013) opines that regulatory institutions that survive today exist because
they turned out to be useful, whereas Wangui (2013) focused on corporate governance as
important factor in financial performance of the SACCOs. Kioko, (2010) cited a relative
increase on the effect of the regulations on the financial performance of SACCOs’ amongst
deposit taking institutions. There has been little focus on establishing the effect of regulations
on the financial performance of SACCOs in Kenya. This study sought to fill the existing
6
knowledge gap by answering the question: What is the effect of effects of SACCOs societies
regulatory authority’s regulation on the financial performance of SACCOs in Eldoret Kenya.
1.3 Objectives of the Study
1.3.1 Main Objective
The main objective of this study was to determine the effects of SACCOs societies regulatory
authority’s regulation on the financial performance of SACCOs in Eldoret Kenya
1.3.2 Specific Objective
The study was guided by the following objectives;
i) To determine the effect of minimum capital requirements on the financial Performance of
SACCOs in Eldoret, Kenya
ii) To assess the effect of minimum liquidity requirements on the financial Performance of
SACCOs in Eldoret, Kenya
iii) To find out the effect of loan provisioning requirements on the financial Performance of
SACCOs in Eldoret, Kenya
iv) To determine the effect of minimum investment requirements on the financial
Performance of SACCOs in Eldoret, Kenya.
1.4 Research Questions
The study sought to answer the following research questions;
i) What is the effect of minimum capital requirements on the financial Performance of
SACCOs in Eldoret, Kenya?
ii) What is the effect of minimum liquidity requirements on the financial Performance of
SACCOs in Eldoret, Kenya?
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iii) What is the effect of loan provisioning requirements on the financial Performance of
SACCOs in Eldoret, Kenya?
iv) What is the effect of minimum investment requirements on the financial Performance of
SACCOs in Eldoret, Kenya?
1.5 Significance of the study
The study is of significant to the following parties;
Management of SACCOs and Financial Institutions
The study is of significance to the management of SACCOs and financial institutions since it
gives them insight on the effects of SACCOs societies regulatory authority’s regulation has had
on their financial performance. This is crucial because the performance of SACCOs is very
crucial and therefore their ability to determine the effect that the regulations given affects their
performance and how they can apply them to get maximum benefits is crucial to the SACCOs. ..
Policy makers
The study findings are of significance to policy makers since it informs them how the policies
they have made affects the performance of the SACCOs. It helps them see areas of weakness and
shortfalls in their policies and revise them to ensure that positively affect the performance of the
SACCOs.
SASRA
The study findings are of significance to the regulator of Saccos that is SASRA since it helps
them understand the effect that their regulations have on the performance of SACCOs helping
8
them to formulate policies that are instrumental in safeguarding the performance of the SACCOs
in order to ensure that they are able to meet their mandate without affecting their performance.
Future Scholars
The study is of great significance to future academic researcher especially those who are
interested in looking at SACCOs societies regulatory authority’s regulation and its effect on
financial performance of SACCOs or other related areas of study since the study provides insight
and form a body of literature that they can refer to. The study also contribute to the body of
knowledge in the field.
1.7 Scope of the Study
This study aimed to determine the effects of SACCOs societies regulatory authority’s regulation
on the financial performance of SACCOs in Eldoret Kenya. It specifically looked at; the effect of
minimum capital requirements, minimum liquidity requirements, loan provisioning requirements
and minimum investment requirements on the financial Performance of SACCOs in Eldoret,
Kenya. The study targeted 71 respondents from 10 SACCOs in Eldoret Kenya. Questionnaires
were used as the main data collection instruments. The study was conducted between June and
July 2017.
1.8 Limitations of the Study
The study was limited to looking at the effects of SACCOs societies regulatory authority’s
regulation on the financial performance of SACCOs in Eldoret Kenya and not any other region.
The respondents could have been untruthful and afraid to provide the information the study
required. To overcome this the researcher assured the respondents of anonymity and
9
confidentiality of the information they provided this gave them confidence in providing the
information without any fear of disclosure or victimization.
10
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter covers the review of literature on effects of SACCOs societies regulatory
authority’s regulation on the financial performance of SACCOs. The chapter contains the
theoretical framework, concepts of SASRA regulatory framework, financial performance, effect
of minimum capital requirements on the financial Performance, effect of minimum liquidity
requirements on the financial Performance, effect of loan provisioning requirements on the
financial Performance and effect of minimum investment requirements on the financial
Performance critical review and the conceptual framework.
2.2 Theoretical Framework
There are several theories governing the effect of Sacco societies’ regulatory framework on
financial performance of SACCOs. Three theories have been identified to guide this study:
financial regulation theory, agency theory and stakeholder theory. These theories have been
selected because of their argument on regulatory framework on performance.
2.2.1 Liquidity and Regulation of Financial Intermediation Theory
The Theory of Liquidity and Regulation of Financial Intermediation was formulated by Farhi,
Golosov and Tsyvinski (2009). The theory postulates two informational frictions: the first
proposes that agents go through unobservable disturbances when they participate in markets by
engaging in trades unobservable to intermediaries. In the absence of regulations, financial
intermediaries have no risk mitigation mechanism because of an externality driven by arbitrage
11
opportunities. In the wake of regulations, financial intermediaries offer risk sharing mechanism
due to an externality born of arbitrage opportunities.
The identification of a simple regulation by Farhi et al., (2009) led to formulation of a liquidity
requirement that has the potential to correct an externality through interest rates in the markets.
They further found that markets miss the extent of liquidity that is optimal. The liquidity cap that
ought to be used is dependent upon the nature of the shocks that financial intermediaries’ agent’s
experience. They went ahead to prove that the optimal liquidity requirements aid in the
implementation of a constrained client allocation subject to unobservable elements. They
proposed closed form solutions in arriving at the optimal liquidity requirement and welfare gains
of imposing such requirements for two important special cases. In contrast with the existing
literature, the necessity of regulation does not depend on exogenous incompleteness of markets
for aggregate shock. It is difficult for an individual financial intermediary to preclude an agent to
enter in additional risk sharing contracts with other intermediaries. Possibility of hidden trades
can significantly worsen and even eliminate risk sharing.
Allen and Gale (2004) then conclude that, in the absence of aggregate shocks and
incompleteness of the markets for aggregate risk, there is no regulation that can improve upon
the market equilibrium. In contrast to the literature, Farhi et al, (2009) proposed that imposing a
liquidity requirement on the minimal (liquidity cap) or the maximal (liquidity cap) amount of
liquidity holdings of the short asset for an intermediary. They identify a reason for the market
failure and externality in which intermediaries do not internalize how liquidity they provide
aspects other intermediaries via the possibility of trades on private markets.
12
Importantly, this externality exists even when there are no aggregate shocks. This contrasts with
the conclusions of Holmstrom and Tirole (1998) and Allen and Gale (2004) that the government
has a role in regulating liquidity only if there are aggregate shocks. They also provide a closed
form solution for the optimal regulation in two cases: for a setup with logarithmic utility and for
the environment studied by
Diamond and Dybvig (1983). Their model suggests practical implications for regulation of
financial intermediation. Various types of intermediaries or different regions in a country,
depending on the primary nature of the shocks that the agents whom they serve experience,
should have different forms of liquidity regulations. The above theory instigated the second
specific objective of the study on the effects of liquidity requirements on financial performance
of Sacco’s in Eldoret, Kenya.
2.2.2 Public Interest Theory
Public interest theory lies with Pigouvian welfare economics, which portrayed the state as an
omnipotent, yet benevolent, maximizer of social welfare that could efficiently correct market
failures (Pigou, 1932). It was first developed by Arthur Cecil Pigou who holds that regulation is
supplied in response to the demand of the public for the correction of inefficient or inequitable
market practices. Regulation is assumed initially to benefit whole society rather than particular
vested interests. The regulatory body is considered to represent the interest of the society in
which it operates rather than the private interests of the investors. The origins of this approach
may be found in the writings of Bentley (1870–1957). Bentley argued that groups capture control
of regulatory agencies to advance their interests. He dismissed the idea of public interest as a
fiction that represented only the interests of group (Hantke-Domas, 2003).
13
Public interest approach is a conventional view of regulation rooted on welfare economics of
Pigou’s (1932). Samuelson (1947) responded to the deficiencies and unfitted market by focusing
on interest of consumers’ regulations in response to demand of relief from inequitable and
inefficient market. The main focus of Public interest approach is public good from which group
or some citizen will benefit. Under public interest approach bank regulation exist for exclusive
benefit of depositors and investors. Public interest theory is usually contrasted with public choice
theory that is more cynical about government behavior and motives and sees regulation as being
socially inefficient.
Moreover, Stiger (1972) argued that regulation can be captured by incumbent firms to protect
market from entry to competitors. Critics believe that this will only occur when the public
demands a better allocative efficiency. This "theory" has no verified predictions or outcomes;
therefore it is not viewed as a valid theory, Criticism does not mean that Public interest theory
should be abandoned because it does explain well about bank regulation. Pigou’s, (1932) classic
treatment of regulation argues where market is imperfect, Adam smith invisible hand will not
work. In addition He further argued that monopoly power, externalities, and informational
asymmetries create a constructive role for finance and growth, and the strong helping hand of
government to help offset market failures and thus enhance social welfare.
The growth of regulation in 1930’s was simply a functional response to the changing public
needs and interests of an evolving industrial society. Despite its romantic appeal, the public
interest theory has been theoretically and practically discredited for its inability to take into
account competing conceptions of the public good, its ascription of heroic and unrealistic
attributes to regulators, its underestimation of the power of organized interests, and its failure to
explain why regulation often fails to deliver public interest outcomes (Baldwin & Cave, 1999).
14
The public interest theory of regulation also holds that firms require regulations in order to
guarantee the choice theory of regulation, which rests on the premise that all individuals,
including public servants, are driven by self-interest (Hantke-Domas, 2003). The above theory
instigated the capital and loan provision objectives of the study on the impact of Sacco societies’
regulatory framework on financial performance of SACCOs in Eldoret, Kenya.
2.2.3 Agency Theory
The agency theory was developed by Jensen and Meckling (1976) in an effort to address the
limitations that face relationships between principals and agents. Shareholders hire managers to
manage their finances by making them productive. There is bound to be a challenge where the
managers feel their efforts are not well rewarded whereas the shareholders might feel that the
managers are employees whose reward should only be income for services rendered (Bamberg &
Spremann, 1987).
This is what Allen and Gale (2004) concluded when they found that the absence of aggregate
shocks and incompleteness of the markets for aggregate risk, may be consequences of lack of
regulation that could improve upon the financial intermediary market equilibrium.
The agency theory identifies to the challenges that arise from the principal-agent relationship.
Two major situations however arise from this relationship thus forming the basis of this theory.
First there is the problem that arises where the objectives or desires of the principal conflicts with
those of the agent (Bamberg & Spremann, 1987). In this regard, it becomes a major challenge for
the principal to verify or ascertain the activities of the agent. This is a classical scenario in the
wake of implementation of regulatory framework. The limitation may be exploited by the agent,
in this case the regulator, for his own advantage thus limiting the benefits accruing to the
15
principal, in this the deposit taking Sacco’s. This may happen while at the same making it
difficult for the principal to ascertain his activities. The principal might thus require of the agent
to undertake risky activities such as adhere to liquidity requirements, capital requirements, loan
provisioning requirements and investment requirements oblivious of the imminent risk in terms
of making loses (Wanyoike, 2013).
The theory instigated the general objective of the study and the specific objective of investments
requirements in the study on the impact of Sacco societies’ regulatory framework on financial
performance of SACCOs in Eldoret, Kenya
2.3 SASRA Regulatory Framework
The Sacco Societies Regulatory Authority (SASRA) was established under the Sacco
Societies Act no. 14 of 2008 which was enacted with an aim of regulating the Savings and Credit
cooperatives sector in Kenya, which lacked a harmonized legal framework (Ministry of
cooperative development and marketing, 2010). The SASRA regulatory framework spells out
the minimum operational regulations and prudential Standards required of a deposit taking
Sacco society. At the Initial Stages of development, regulation simply entails registration
of SACCOS to conduct business. As SACCOS approach maturity stage regulations focuses
on prudential standards which establishes a risk assessment process focusing on liquidity, capital
adequacy and governance. At the maturity stage, regulation establishes Deposit guarantee system
for explicit comfort to members that their funds are safe. The Kenyan licensing process adopts a
tiered approach Involving application, inspection, provision of letter of intent, and final
license after fulfilling the minimum requirements. SACCOS are required to fulfill prescribed
parameters and submit various documents and must be inspected to qualify for licensing. Upon
16
licensing the Authority regularly supervises the operations of the Sacco to ensure they operate
under the terms of license Sacco
2.4 Financial Performance
According to Piesse and Townsend (1995) members of SACCOs are interested in minimizing the
cost of funds for loans while at the same time seeking safe and profitable avenues for their
savings and this makes their objective rather intricate. Thus SACCOs would be more efficient by
minimizing the operating expenses and raising non retail funds cheaply while earning high
returns on non-retail investment. Financial performance is the results of any of many different
activities undertaken by an organization. Common examples of financial performance include
operating income, earnings before interest and taxes, and net asset value (Cole, 2004). There are
different ways of measuring financial performance which should all be taken in aggregation.
Line items such as revenue from operations, operating income or cash flow from operations can
be used as well as total unit sales. The analyst may wish to look deeper into the financial
statements to seek out marginal growth rate or declining debt using such ratios as Return on
Assets (ROA), Return on Investment (ROI) and Return on Equity (ROE) (Johnson & Scholes,
2007). For this study, the researcher measures financial performance in terms of ROE.
In 1979, the Uniform Financial Institutions Rating System (UFIRS) was implemented in United
States of America (U.S.A) banking institutions, and later globally, following a recommendation
by the U.S.A Federal Reserve. The system became internationally known, reflecting five
assessment areas: capital, asset quality, management, earnings and liquidity. This model is
adopted for this study. In 1995 the Federal Reserve added financial System. This covers an
assessment of exposure to market risk. The rating system is designed to take into account and
reflect all significant financial and operational factors examiners assess in their evaluation of an
17
institutions performance. Institutions are rated using a combination of specific financial ratios
and examiner qualitative judgments (Brockett et al. 1997). They are discussed in the next section
2.5 Conceptual Review
2.5.1 Effect of Minimum Capital Requirements on the Financial Performance of Saccos
SACCOS are required to meet the following minimum ratios: Core capital of not less than Kshs
10million, Core capital of not less than 10% of total assets, Institutional capital of not less than
8% of total capital, Core capital of not less than 8% of total deposits.
Challenges of the core capital requirement include; A number of SACCOS cannot meet the
minimum capital requirements and ratios, Some SACCOS have not separated Capital from
members deposits, difficulties in comprehending constitution of the core capital and subsequent
calculation of the capital ratios.
The obvious prudential standard is the minimum amount of liquid capital that MFIs should
raise to entry the regulated market (Staschen, 2003). This requirement is an absolute
measure of solvency and is usually established by primary regulation. It serves as a
cushion in periods when the institution shows an unhealthy situation due to its own performance
or to exogenous factors such as economic downturns (Christen el at, 2003).
Sacco societies shall maintain minimum capital requirements as prescribed by SASRA or else
pay a penalty interest not more than 1% of the amount of deficiency for every day with
deficiency (SASRA, 2012), some argue that high minimum capital requirements could act
as barriers to market entry to possible new players that are not able to raise sufficient capital
for the initial stages as a regulated institution (Jansson, 1997). But a high minimum capital
requirement could help to mitigate moral hazard behavior among shareholders (Jansson et al,
18
2004). In addition, a high minimum capital requirement is often seen as one tool for limiting the
number of institutions that the supervisory body should be responsible for monitoring,
especially if the supervisory resources are scarce (Schmidt, 2000)
2.5.2 Effect of Minimum Liquidity Requirements on the Financial Performance of Saccos
SACCOS are required to maintain 15% of the savings, deposits and short term liabilities in liquid
assets. Sacco Societies are required to put in place contingency plans to handle liquidity that
includes procedures for making up liquidity shortfalls in emergency situations. There is
weekly monitoring of liquidity and requires submission of a monthly statement of liquidity
return to the Authority. Sacco Societies are not to engage in prohibited businesses and are
required to establish savings policy prescribing terms and conditions of opening, operating and
closing accounts
Ruozi and Ferrari (2013) noted the essence of imposing liquidity requirements towards the
implementation of government policies. They found that liquidity requirements can be varied to
regulate the quantity of money circulating in the economy and eventually impact financial
performance of the organization. Covas and Driscoll (2014) avers that by regulating the quantity
of money in the economy the level of demand is by extension regulated. However, it was noted
that by regulating the liquidity requirements, the financial intermediaries are affected in terms of
deposits that can be converted into loans. For instance, a high rate of liquidity requirements
implies that the financial institutions have to retain a higher level of deposits thus reducing the
amount of deposits that can be converted into loans. Varying the levels of liquidity requirements
affects the performance of financial intermediaries substantially. Financial intermediaries get
their incomes from interests of loaned out funds, regulations that affect loanable funds affects the
income of the financial intermediaries.
19
2.5.3 Effect of Loan Provisioning Requirements on the Financial Performance of Saccos
It is mandatory to have a loaning policy specifically detailing loan concentration limit, terms and
condition of insider lending. The borrower should be provided with quarterly statements of each
outstanding credit facility. A Sacco Society shall seek prior approval to introduce any new loan
product. SACCOS are also prohibited borrowing more than 25% of total capital and shall charge
interest at least 2% higher than the borrowing rate.
The classification of loan shall be in five categories; performing, watch, substandard,
Doubtful. SACCOS are also required to have a comprehensive loaning policy that
conforms to the regulatory requirement.
2.5.4 Effect of Minimum Investment Requirements on the Financial Performance of Saccos
Investment in non-earning asset should not exceed10% of the total asset in which land and
buildings should not exceed5% of the total assets. The board of directors is responsible
for the formulation of the investment policy which shall be frequently updated. Financial
investment should not exceed 40% of core capital or 5% of total deposits.
As savings and credit cooperatives (SACCOs) grow and become regulated, the need to build
capital becomes a requirement not only from the regulatory authorities but as the most cost,
efficient financing option for new products, services, marketing and branch network
expansion. The World Council of Credit Unions (WOCCU) defines institutional capital as “the
total of the SACCO’s regulatory reserve account, undivided or retained earnings, special
reserves, and net income that has yet to be closed to the retained earnings account.”
According to the PEARLS standards, institutional capital should represent 10% of the SACCO’s
total assets. Having an effective regulatory framework therefore is expected to streamline
20
operations of the SACCOS, safeguard members deposit through creation of the deposit guarantee
fund and improve general management through a requirement that competent office holders
serve as board of directors.
2.6 Past Studies
Onguka (2014) carried out a study on the effect of regulations on the financial performance of
deposit taking savings and credit cooperative societies in Kenya. The aim of this study was to
investigate the effect of regulations on the financial performance of deposit taking savings and
credit cooperatives (SACCOs) in Kenya. More specifically, the study sought to investigate the
effect on management efficiency, liquidity and capital adequacy on the financial performance of
deposit taking SACCOs in Kenya, as stipulated by Sacco Society Regulatory Authority
(SASRA). Many studies have clearly avoided looking at specific aspects of these regulations
particularly their effects on financial performance of the Sacco. This study adopted a descriptive
survey design. The target population was all the 135 deposit taking SACCOs in Kenya registered
and licensed by SASRA by 2014. Both primary and secondary data was used in this study, where
a census survey was preferred as the population of the study was small. A likert scale
questionnaire was used to gather primary information while a secondary data collection sheet
was used for collecting secondary information regarding SACCO performance. Out of the 135
questionnaires sent out, 109 responded and returned the questionnaires, this represented 81%
response rate. The secondary data was sorted, coded and input into the statistical package for
social sciences (SPSS) for production of graphs, tables, descriptive statistics and inferential
statistics.
The results indicated that SACCO regulations have positive effect on capital ratio and which led
to an increase in return on assets (ROA), further it was established that increase in liquidity led to
21
a decrease in ROA .The study found out that a unit increase in management efficiency increased
ROA. From the findings, the study concluded that capital regulations, capital ratio, liquidity and
management efficiency significantly influence financial performance of the Deposit Taking
SACCOs. Most SACCOs reported improvement in their performance both in membership,
management efficiency, portfolio growth and loan cycle. Even though this was attributed to a
number of factors ranging from increased membership, high efficiency, high demand and quick
recoveries, one can easily attribute these results on positive influence of SASRA regulation
(Onguka, 2014).
Kiragu (2014) carried out a study on the effect of Sacco societies regulatory authority’s
regulations on financial performance of Saccos in Nairobi County. According to the study,
Savings and Credit Co-operatives Societies (SACCOs) in Kenya are required to adhere to
regulations set in Sacco Societies Regulatory Authority’s (SASRA) regulations. The objective
of the study was to determine the effects of SASRA regulations on financial performance of
SACCOs’ in Nairobi County. The study adopted descriptive research design study in which data
was gathered just once over the period 2008 to 2013 for 35 SACCOs in Nairobi County
registered by SASRA. The study was facilitated by use of secondary data. Multiple regression
analysis was applied to the data to examine the effects of SASRA regulations on investment
performance of SACCO’s in Nairobi County.
The study revealed that SASRA regulations had positive effects on the financial performance of
SACCOs’ in Nairobi County. The study concludes that SASRA regulations have had effects on
financial performance of SACCOs’ in Nairobi County. The study revealed that there was a
positive relationship between size, liquidity, capital adequacy ratio compliance, managerial
quality, cost of income and financial performance of SACCOs’ in Nairobi County. The study
22
revealed that there was a negative relationship between non-performing loans and financial
performance of SACCOs’ in Nairobi County. The study revealed that that major variation on
financial performance of SACCOs’ in Nairobi County could be accounted by changes in size,
liquidity, non-performing loans, capital adequacy ratio compliance, managerial quality and cost
of income. The study revealed that there was a strong relationship between financial performance
of SACCOs’ in Nairobi County and changes in size, liquidity, non-performing loans, CAR
compliance, managerial quality and cost of income as shown by strong correlation coefficients
(Kiragu, 2014).
SACCOs in Kenya are required to adhere to regulations set in Sacco’s regulation authority
(SASRA). The management has to present the capital adequacy return reports, liquidity
statement report, Statement of financial position and Statement of deposit return as well as
Return on investments report which compares land, building, and financial assets to the
SACCO’s total assets and its core capital.
Kilonzi (2012) carried out a study on the impact of SASRA regulations on the financial
performance of SACCO’s in Kenya. This study sought to fill the existing knowledge gap to
determine the effect of SASRA regulation on Sacco’s financial performance and to answer
the questions what is the impact of SASRA regulations on SACCO’s financial performance
in Kenya. The objective of the study was to establish the impact of SASRA Regulations on
SACCO financial performance in Kenya. Causal research design was chosen to establish the
effects of SASRA regulations on the financial performance of SACCOs in Kenya. The study
targeted the 98 SACCOs registered by SASRA. The sampling method chosen for this study
was purposive sampling which is a form of non-probability sampling to select 30 SACCO
based in Nairobi. The study used secondary data. The secondary data was collected from the
23
financial statements of the SACCOs to obtain information on annual earnings of the SACCOs
registered under SASRA. A linear regression model of SACCOs return on assets versus SASRA
regulations was applied to examine the relationship between the variables.
From the findings, the study found that higher capital requirements, and increase in
management efficiency impacted positively to SACCO’s profitability in the post- capital
regulation period. The study revealed that capital regulation affects financial performance in
SACCOs. The study concluded that financial stability could be at risk as a result of shocks
impinging on the economic system and absence of proper policy adjustments to mitigate the
effects of these shocks. For policy implications, the findings indicate the importance of reviving
demand for credit using macroeconomic policies (Kilonzi,2012).
Sacco Society regulatory authority SASRA is a semi-autonomous government agency operating
under the ministry of cooperative development and marketing .It was created by section 40f the
SACCO society act 2008 .It has the duty to license and supervise all deposit taking Sacco
Societies in Kenya .Its operation are guided by the cooperative societies Act, Sacco society Act
and Sacco society regulations 2009.The regulation came into force in June 2009.The setting up
of SASRA was in response to 'the rapid growth of the Sacco without a corresponding legal
framework to guide its growth and development. With this in mind the SACCO Societies Act in
2008 was enacted to provide for licensing, regulation and supervision of deposit taking Sacco
Societies through the adoption of prudential and non-prudential regulations. Therefore the
establishment of SASRA was in line with the Governments financial sector reform initiative. It
should be remembered Kenya seeks to strengthen its position as a financial hub for the region
24
and as a reference point for financial development The ongoing financial reform process in the
financial sector seeks to first ~ect the interest of Sacco members and ensure public confidence
towards the Sacco sector and secondly to Spur Kenya's economic growth through mobilization of
domestic savings. SASRA immensely contributes to the national co-operative sector flagship
projects and support initiatives by developing and implementing relevant programmes and
activities in cooperative governance, safety and security of members' deposits, business process
automation in the Sacco sub-sector" research and development in the Sacco sub-sector, as well as
carrying out education and training programmes for regulated Sacco Societies.
Macharia (2013) carried out a study on the effect of licensing requirements on the performance
of Cooperatve Societies in Kenya. A Survey of Deposit Taking Sacco Societies in Nakuru
County. The specific objectives -of the study were: To assess the effect of capital adequacy on
the performance of deposit taking SACCOs in Kenya. To assess the effect of Management
information system on the performance of deposit taking SACCOs Kenya, to assess the effect of
corporate governance on the performance of deposit taking SACCO in Kenya .The study adopted
the descriptive research design. The target population was 65 respondent comprising of senior
management staff and Board of Directors of 3 licensed deposit taking Sacco Societies in Nakuru
County. The questionnaire design adopted both open ended and close ended questions from
which respondents were required to fill in. The researcher used questionnaires to solicit data
from the subject. The results of the analysis were presented and interpreted in the form of tables
and charts, percentages tabulation frequencies mean and other measure of central tendency
.Tables were used to summarize the responses for further analysis and facilitate comparison thus
generating qualitative reports of the study. Most SACCOs reported improvement in their
performance both in membership, portfolio and efficiency. His is attributed to be the result of
25
SACCO Licensing requirements. Most SACCOs are complying with the regulator requirement
so as not to be locked out of the business by the operator. It is also clear from the study that all
the SACCOs are conversant with the new licensing law.
Mutinda (2016) carried out a study on the impact of prudential regulatory framework on
financial performance of deposit taking Saccos in Kenya. The specific objectives in this case are;
to determine the relationship between liquidity requirements and performance of deposit taking
SACCOs in Kenya, to establish the relationship between capital requirements and performance
of deposit taking SACCOs in Kenya, to investigate the relationship between loan provisioning
requirements and performance of deposit taking SACCOs in Kenya, and to evaluate the
relationship between minimum investment requirements and performance of deposit taking
SACCOs in Kenya. The population of the study was comprised of these deposit taking SACCOs
in Kenya which are 181 in number.
The study found that the application of prudential regulatory requirement was even among all the
SACCOs in Kenya. The study further found the implication of loan provisioning requirement
was highest in influencing financial performance of SACCOs in Kenya. The four independent
variables were found to have a positive relationship with return on investment. Liquidity were
requirement was however found to have the least impact on financial performance on Deposit
Taking SACCOs in Kenya holding the other variables constant. The study further recommended
that SACCOs can re-evaluate their approach towards issuance of loans mainly because the level
of non-performing loans was seen to be relatively higher that the prevailing levels on interest
(Mutinda 2016)
26
Kioko, (2016) carried out a study on the effect of capital adequacy regulations on savings and
credit cooperative societies in Kenya: A Study of Deposit-Taking Saccos in Nairobi County The
purpose of the study was to investigate the effect of capital adequacy regulations on savings and
credit cooperative societies in Nairobi County. The study sought to answer three questions,
namely: Why is it necessary for SACCOs to adhere to capital adequacy regulations? What
challenges have SACCOs faced in complying with capital adequacy requirements and what
strategies have SACCOs undertaken to meet the requirements for capital adequacy?
The study evaluated the requirements for commercial banks in Kenya as out lined by the Central
Bank of Kenya as well as the requirements for SACCOs specified by SASRA in the prudential
guidelines. An analysis of strategies that these institutions have undertaken to adhere to capital
adequacy regulations, as enforced by their respective regulatory bodies, has also been described.
This was done with comparison to commercial banks for strategies that are also applicable to
SACCO industry. Finally the challenges that these institutions face in their efforts to comply
with prudential guidelines of capital adequacy has been covered, with specific reference to
SACCOs in Kenya and reviewing specific situations that have been encountered.
The design of the research was a descriptive study that sought to detail the effect of capital
adequacy regulation on SACCOs. The population under study was the Front office Savings
Activity, FOSA, operating SACCOs within Nairobi County whereby a census was taken of all 35
of these SACCOs operating within the county. Data collection was carried out by means of
questionnaires and interviews with respondents being chosen randomly from within the
SACCOs. Analysis was undertaken using SPSS software to determine any correlations and
frequencies within the data.
27
The study concluded that SACCOs had benefited significantly from the regulations in various
ways such as, managing credit risk, improved public confidence, providing a safety net for
members’ deposits, provision of operating capital, increased lending capacity, providing a base
for future growth, and preventing insolvency. SACCOs had faced various challenges in
complying with capital adequacy regulations. These were reduced pay-out on members’ funds,
recruitment of new members, restricted avenues for investment, and reduced lending capacity.
The SACCOs had engaged in strategies to meet capital adequacy. Of these strategies, SACCOs
found issuing new capital, increasing membership base, diversifying product base, adjusting
dividend pay-out ratio, stricter credit rating, matching share contributions to loan amounts
guaranteed and reduced payment periods to be most effective (Kioko, 2016)
2.7 Critical Review
Literature reviewed indicate that SACCOs play an increasingly important role in Kenya’s
financial sector, serving a growing number of both urban and rural poor households. The
management has to present the capital adequacy return reports, liquidity statement report,
statement of financial position and statement of deposit return as well as return on investments
report which compares land, building, and financial assets to the SACCO’s total assets and its
core capital (WOCCU, 2009).
As a results of the importance of the sector, numerous studies have been carried out in the area.
The studies include; Onguka (2014) who carried out a study on the effect of regulations on the
financial performance of deposit taking savings and credit cooperative societies in Kenya;
Kiragu (2014) who carried out a study on the effect of Sacco societies regulatory authority’s
regulations on financial performance of Saccos in Nairobi County; Kilonzi (2012) who carried
out a study on the impact of SASRA regulations on the financial performance of SACCO’s in
28
Kenya; Macharia (2013) who carried out a study on the effect of licensing requirements on the
performance of Cooperatve Societies in Kenya; Mutinda (2016) who carried out a study on the
impact of prudential regulatory framework on financial performance of deposit taking Saccos in
Kenya; Kioko, (2016) who carried out a study on the effect of capital adequacy regulations on
savings and credit cooperative societies in Kenya: A Study of Deposit-Taking Saccos in Nairobi
County. however, none of this studies have been carried out in Eldoret, Uasin Gishu county
which this study aims to do.
2.8 Conceptual Framework
The study adopted the following conceptual framework to illustrate how the variables interact in
the study in relation to effects of SACCOs societies regulatory authority’s regulation on the
financial performance of SACCOs in Eldoret Kenya. This is illustrated in figure 2.1
29
Independent Variable Dependent Variable
Saccos Societies Regulatory Financial Performance
Authority’s Regulations
Fig 2.1 Conceptual Framework
Minimum capital requirements;
➢ Equity
➢ Total Assets
Minimum liquidity requirements;
➢ Deposits
➢short term liabilities
Minimum investment
requirements;
➢ Total Non-earning assets
➢ Total assets
Loan provisioning requirements;
➢ Non-Performing loans
➢ Total Loans
Financial Performance of SACCOs
Profitability
Asset growth
Membership growth
30
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1 Introduction
This chapter covers the study area, research design, target population, sample population,
research instruments, data collection methods, data analysis and ethical issues.
3.2 Research Design
The study adopted a descriptive survey research design. The survey research design was selected
for its ability to collect varied responses from the respondents with an aim of properly
understanding the issues under study. This implies that through the survey, the researcher was
able to examine in detail the effects of effects of SACCOs societies regulatory authority’s
regulation on the financial performance of SACCOs in Eldoret Kenya.
A survey study research excels at bringing to an understanding of a complex issue or object and
can extend experience or add strength to what is already known through previous research
(Patton, 2006). According to Kerlinger (1973), descriptive studies are not only restricted to fact
finding but may also be used in the formulation of important principles of knowledge. It involves
measurement, classification, analysis, comparison and interpretation of data. The method is used
to collect information by interviewing, administering questionnaires to a sample of individuals
(Orodho, 2003). The survey is deemed suitable for the study because it will provided a snapshot
of the situation as it is at a particular time, with a view to analyzing patterns and trends applying
to the group as a whole.
31
3.3 Description of Target Population
According to Mugenda (1999), target population is a population to which a researcher would like
to generalize the result of the study. The study targeted employees from the finance department
in 10 SACCOs within Eldoret, Uasin Gishu County. The target population was 71 as illustrated
in table 3.1
Table 3.1 Target Population
Company Target
Boresha SACCO 4 Muungano Farmers’ cooperative society 6
Kaplelach Dairy Group 8
Kisuwi Dairy group 6
Ainabkoi Sacco Society Ltd 6
Keiyo Teachers Sacco, 7
Trans- Elite County Sacco Society Ltd
P.O Box 547-30300, Kapsabet.
8
Moi University Sacco Society Ltd- P.O.
Box 23 – 30107, Moi University
10
Noble Sacco Society Ltd- P.O.Box 7
Baraton University Sacco Society Ltd-. 9
Total 71
Source: (SASRA, 2017)
3.3 Sample and sampling Technique
Kothari (2009), defines a sample as part of the target population that has been procedural
selected to represent it. Sampling is the process of systematically selecting representative
elements of a population. Since the population is small (71) census was used to collect data from
the entire population (Kothari, 2004). A census provides a true measure of the population i.e. no
sampling error, benchmark data may be obtained for future studies and detailed information
about small sub-groups within the population is more likely to be available. This was preferred
because of the small sample size involved in the study.
32
3.4 Data Collection Instruments
This refers to the tools which were used for collecting data and how these tools were developed
and administered. The data collection instruments that was used to collect data from the selected
respondents was questionnaires. Selection of these tools was guided by the nature of data to be
collected, time available, objectives of the study and the simplicity of the instruments.
Structured questionnaires were used to collect the required information from the study
population. The questionnaires was administered to the employees in the finance department of
the companies. By using self-administered questionnaires information about effects of effects of
SACCOs societies regulatory authority’s regulation on the financial performance of SACCOs in
Eldoret Kenya was gathered. The questionnaire consisted of the respondents’ background
information and respondents’ perception on SACCOs societies regulatory authority’s regulation
on the financial performance. This method was chosen because it enabled the researcher to
obtain a lot of information in a small space of time. The instrument also ensured anonymity of
respondents as their identities were not requested for.
3.5 Data Collection Procedures
A permit was obtained from the university to conduct the study. Permission was also sought
from the SACCOs in order to conduct the study. Once permission was granted, appointments
were booked with the SACCOs to determine the most suitable day and time to carry out the
study. While filling the questionnaires, respondents were not be required to write their names.
This was expected to enable them give sincere and reliable responses. The information was
gathered through on-the-spot questionnaire filling for the respondents who consented to take part
in the study. This ensured high return rate of the questionnaires and rule out the problems likely
to be encountered by collecting them later.
33
3.6 Validity and Reliability of the Research Instruments
3.6.1 Validity of Instruments
According to Mugenda and Mugenda (2003), validity is the degree to which results obtained
from the analysis of data actually represent the phenomena under study. A valid instrument
should accurately measure what it is supposed to measure. Validity refers to the extent to which
an empirical measure adequately reflects the real meaning of the subject under investigation
(Babbie, 2005). In order to specify and determine the content validity of the research instruments
the researcher consulted the supervisors whose critique was used to improve the questionnaire to
ensure that the instruments were viable to collect data from the intended area Content validity
was ensured by doing a thorough literature review study on which the content of the
questionnaire was based.
3.6.2 Reliability of Instruments
Reliability is the consistency of the research instrument. Mugenda and Mugenda (1999) observe
that reliability is a measure of degree to which a research will yield consistent results after
repeated trials. To ensure reliability of the research instruments, the questionnaires that was used
for the purposes of this study was subjected to test-retest. The results from test-retest were used
to assist in restructuring the questions in the questionnaire that are not clear to the respondents.
3.7 Data Analysis
The data was collected using questionnaires. Data for this research was both qualitative and
quantitative. Qualitative data analysis involved explanation of information obtained from the
literature. This was done through discussion and explanation of study findings. Quantitative
analysis was done for the numerical data obtained from the field. This was done using
descriptive statistics with the help of Microsoft version of Excel. Measures of central tendency
34
(mean) and measures of dispersion such as frequencies and percentages will be used. Graphs,
tables and pie charts were used to represent the outcomes.
3.9 Ethical Considerations
To ensure that the study complied with the ethical standards of research, permission to conduct
the research was sought from the respective authorities within the Saccos. A full disclosure of all
the activities concerning the study were provided to the authorities. A high level of
confidentiality and privacy was observed and the findings of the study were not be disclosed to
unauthorized individuals. A letter of introduction was also obtained from the University. In
respect for the informants and in order to protect them from abuse resulting from the data they
give for the research, data was presented in such a way that it did not reveal identities of the
participants. Informed consent involved in the study was obtained from participants. This was
done through the use of a consent form.
35
CHAPTER FOUR
DATA ANALYSIS, PRESENTATION AND DISCUSSION
4.0 Introduction
The study sought to determine the the effects of SACCOs societies regulatory authority’s
regulation on the financial performance of SACCOs in Eldoret Kenya. This was done by
determining the effect of minimum capital requirements, minimum liquidity requirements, loan
provisioning requirements and minimum investment requirements on the financial Performance
of SACCOs in Eldoret, Kenya. The study targeted 71 employees from the finance department in
10 SACCOs within Eldoret, Uasin Gishu County; of these 62 were able to take part in the study
giving a response rate of 87.3%. This was more than sufficient for the study so the researcher
went ahead to analyze the data.
4.1 Demographic Information
The study sought to determine the demographic information of the respondents. This included
their gender, age, educational level and experience. This aspects of the respondents were selected
to capture the differences in the respondents and to illustrate how these differences affects the
performance of the firms in relation to Sacco society’s regulatory authority’s regulations. The
findings are presented as follows;
36
Figure 4.1 Gender of the Respondents
The findings on the gender of the respondents indicate that 56.50% were female while 43.50
were male. These findings indicate that both genders were well represented in the study therefore
indicating that the study was not biased towards any gender since the opinions of both genders
were captured.
43.50%
56.50%
Gender of the Respondents
male female
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
Certificate Diploma Graduate Masters'
8.10%
33.90%
48.40%
9.70%
Education of the Respondents
37
Figure 4.2 Educational Level of the Respondents
The findings on the educational level of the respondents indicate that 48.40% were graduates, 33.
9% had diplomas, 9.7% had masters’ degree while 8.20% had certificate level education. This
findings indicate that the respondents were drawn from different educational levels brining in the
opinions of the different levels. However a majority of the respondents were graduates therefore
implying that they were in apposition to provide information for the study since they were
learned.
Figure 4.3 Age of the Respondents
The findings on the age of the respondents indicate that 37.10% were aged between 31-40 years,
37.10% were aged between 41-50 years, 12.90% were below 20 years while 12.90% were aged
above 51 years old. These findings indicate that the respondents were drawn from different age
brackets and therefore were in a position to provide information and opinions of different age
brackets.
0.00%
10.00%
20.00%
30.00%
40.00%
below 30 years 31-40 years 41-50 years 51 years and above
12.90%
37.10% 37.10%
12.90%
Age of the Respondents
38
Figure 4.4 Experience of the Respondents
The findings on the experience of the respondents indicate that 45.20% had an experience of
between 6-10 years, 25.80% were between 2-5 years, 14.50% had between 11-15 years, 8.10%
had over 16 years while 6.50% had below 1 year of experience. These findings indicate that the
respondents had different lengths of experience with their companies which allowed them to
provide information for the study presenting different points of views influenced by their lengths
of experience.
4.2 Effect of Minimum Capital Requirements on the Financial Performance of SACCOs in
Eldoret, Kenya
The study sought to determine the effect of minimum capital requirements on the financial
Performance of SACCOs in Eldoret, Kenya. The findings are presented in table 4.1
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
below 1 year 2-5 years 6-10 years 11-15 years above 16 years
6.50%
25.80%
45.20%
14.50%
8.10%
Experience of the Respondents
39
Table 4.1 Minimum Capital Requirements and Financial Performance of SACCOs
Key SA- Strongly Agree, A –Agree N – Neutral, D – Disagree, SD – Strongly Disagree
SA A N D SD T M
The Sasra requirements have affected the
ability of the saccos to maintain the capital
requirement ratios
F 20 36 5 1 0 62 4.21
% 32.3 58.1 8.1 1.8 0 100 85.0
The high minimum capital requirement has
limited the number of institutions that seek
licensing as Saccos
F 29 32 1 0 0 62 4.45
% 46.8 51.6 1.6 0 0 100 89.0
The Sacco has been able to adequately meet
the core capital requirements
F 18 33 8 3 0 62 4.06
% 29.0 53.2 12.9 4.8 0 100 81.2
Source: (Field data, 2017)
The findings on the effect of minimum capital requirements on the financial performance of
SACCOs in Eldoret, Kenya indicate that 89.0% of the respondents held that the high minimum
capital requirement has limited the number of institutions that seek licensing as Saccos, 85.0%
held that the Sasra requirements have affected the ability of the saccos to maintain the capital
requirement ratios while 81.2% of the respondents held that the Sacco has been able to
adequately meet the core capital requirements.
These findings indicate that a majority of the respondents held that the high minimum capital
requirement has limited the number of institutions that seek licensing as Saccos. This therefore
implies that since the minimum capital requirement needed to license an entity as a Saccos was
high only few could attain it therefore limiting the number that seek licensing. This is crucial
since it ensured only capable firms are able to get licenses therefore safeguarding the funds of the
members since the requirement ensured that the Saccos maintain a solvency level.
These findings concur with Christen el at, (2003) whose study indicated that this requirement is
an absolute measure of solvency and is usually established by primary regulation. It
serves as a cushion in periods when the institution shows an unhealthy situation due to its own
40
performance or to exogenous factors such as economic downturns. The findings also concur with
Jansson et al, (2004) whose study indicated that high minimum capital requirements could act
as barriers to market entry to possible new players that are not able to raise sufficient capital
for the initial stages as a regulated institution. But a high minimum capital requirement could
help to mitigate moral hazard behavior among shareholders. In addition, a high minimum capital
requirement is often seen as one tool for limiting the number of institutions that the
supervisory body should be responsible for monitoring, especially if the supervisory
resources are scarce (Schmidt, 2000)
4.3 Effect of Minimum Liquidity Requirements on the Financial Performance of SACCOs
in Eldoret, Kenya
The study sought to determine the effect of minimum liquidity requirements on the financial
Performance of SACCOs in Eldoret, Kenya. The findings are presented in table 4.2
Table 4.2 Minimum Liquidity Requirements and Financial Performance of SACCOs
Key SA- Strongly Agree, A –Agree N – Neutral, D – Disagree, SD – Strongly Disagree
SA A N D SD T M
The sacco has increased the amounts of
deposits available for its depositors
F 32 30 0 0 0 62 4.52
% 51.6 48.4 0 0 0 100 90.4
The Sacco has reduced the number of short
term liabilities it offers in terms of loan
F 19 29 11 3 0 62 4.03
% 30.6 46.8 17.7 4.8 0 100 80.6
As a result of adhering to the SASRA
regulation, the Sacco has been able to
maintain a balanced ratio
F 23 28 8 3 0 62 4.14
% 37.1 45.2 12.9 4.8 0 100 82.8
Source: (Field data, 2017)
The findings on the effect of minimum liquidity requirements on the financial performance of
SACCOs in Eldoret, Kenya indicate that 90.4% of the respondents held that the sacco has
increased the amounts of deposits available for its depositors, 82.8% held that as a result of
adhering to the SASRA regulation, the Sacco has been able to maintain a balanced ratio while
41
80.6% of the respondents held that the Sacco has reduced the number of short term liabilities it
offers in terms of loan.
These findings indicate that a majority of the respondents held that the sacco has increased the
amounts of deposits available for its depositors. This therefore implies that since the firms are
required to maintain a certain liquidity level, they have to have more funds at their disposal
which their members can easily access, they also safeguarded the members funds ensuring that
the Sacco was able to operate efficientsly.
These findings concur with Kioko, (2016) whose study on the effect of capital adequacy
regulations on savings and credit cooperative societies in Kenya showed that SACCOs had
benefited significantly from the regulations in various ways such as, managing credit risk,
improved public confidence, providing a safety net for members’ deposits, provision of operating
capital, increased lending capacity, providing a base for future growth, and preventing
insolvency.
4.4 Effect of Loan Provisioning Requirements on the Financial Performance of SACCOs in
Eldoret, Kenya
The study sought to determine the effect of loan provisioning requirements on the financial
Performance of SACCOs in Eldoret, Kenya. The findings are presented in table 4.3
Table 4.3 Loan Provisioning Requirements and Financial Performance of SACCOs
Key SA- Strongly Agree, A –Agree N – Neutral, D – Disagree, SD – Strongly Disagree
SA A N D SD T M
The SASRA regulations have enabled the
Sacco to reduce the number of Non-
Performing loans
F 22 34 5 1 0 62 4.24
% 35.5 54.8 8.1 1.6 0 100 84.8
The Sacco has been able to maximize on the
number of total Loans
F 16 35 9 2 0 62 4.05
% 25.8 56.5 14.5 3.2 0 100 81.0
42
The Sacco has been able to formulate a loan
provision requirement that has enabled it to
maximize on performance
F 31 31 0 0 0 62 4.50
% 50.0 50.0 0 0 0 100 90.0
Source: (Field data, 2017)
The findings on the effect of loan provisioning requirements on the financial performance of
SACCOs in Eldoret, Kenya indicate that 90.0% of the respondents held that the Sacco has been
able to formulate a loan provision requirement that has enabled it to maximize on performance,
84.8% held that the SASRA regulations have enabled the Sacco to reduce the number of Non-
Performing loans while 81.0% held that the Sacco has been able to maximize on the number of
total Loans.
These findings indicate that a majority of the respondents held that the Sacco has been able to
formulate a loan provision requirement that has enabled it to maximize on performance. These
findings therefore imply that the regulations that were stipulated enabled the Saccos to come up
with loan provision requirements that enable them to maximize their performance.
These findings concur with Mutinda (2016) whose study indicated that The implication of loan
provisioning requirement was highest in influencing financial performance of SACCOs in
Kenya. This is because the loan provision requirement was for the SACCOs to re-evaluate their
approach towards issuance of loans. The findings also concur with Covas and Driscoll (2014)
whose study indicate that that by regulating the requirements that should be met before loan
provision, the saccos were safeguarded from bad debts from clients who could not repay their
loans therefore improving their performance since only potential clients who were assets would
be considered.
43
4.5 Effect of Minimum Investment Requirements on the Financial Performance of
SACCOs in Eldoret, Kenya
The study sought to determine the effect of minimum investment requirements on the financial
Performance of SACCOs in Eldoret, Kenya. The findings are presented in table 4.4
Table 4.4 Minimum Investment Requirements and Financial Performance of SACCOs
Key SA- Strongly Agree, A –Agree N – Neutral, D – Disagree, SD – Strongly Disagree
SA A N D SD T M
The SASRA regulations have enabled the
Sacco to reduce total Non-earning assets
F 15 39 6 2 0 62 4.08
% 24.2 62.9 9.7 3.2 0 100 81.6
The SASRA regulations have enabled the
Sacco to increase its total assets
F 13 37 10 2 0 62 3.98
% 21.0 59.7 16.1 3.2 0 100 79.6
The Sacco has a policy that regulates its
investments made in line with SASRA
regulation
F 22 40 0 0 0 62 4.35
% 35.5 64.5 0 0 0 100 87.0
Source: (Field data, 2017)
The findings on the effect of minimum investment requirements on the financial performance of
SACCOs in Eldoret, Kenya indicate that 87.0% held that the Sacco has a policy that regulates its
investments made in line with SASRA regulation, 81.6% held that the SASRA regulations have
enabled the Sacco to reduce total Non-earning assets while 79.6% held that the SASRA
regulations have enabled the Sacco to increase its total assets.
These findings indicate that a majority of the respondents were of the opinion that the Sacco has
a policy that regulates its investments made in line with SASRA regulation. These findings
imply that the sasra regulation imposed on Saccos enabled the sacco to come up with a policy
that that regulates the investment safeguarding the funds of the members.
These findings concur with Kioko, (2016) whose study indicated that the SACCOs had benefited
significantly from the regulations in various ways such as, managing credit risk, improved public
44
confidence, providing a safety net for members’ deposits, provision of operating capital,
increased lending capacity, providing a base for future growth, and preventing insolvency.
SACCOs had faced various challenges in complying with capital adequacy regulations. These
were reduced pay-out on members’ funds, recruitment of new members, restricted avenues for
investment, and reduced lending capacity. The SACCOs had engaged in strategies to meet
capital adequacy.
4.6 Financial Performance of SACCOs
The study sought to determine the indicators of financial Performance of SACCOs in Eldoret,
Kenya as a result of applying the regulations of SASRA. The findings are presented in table 4.5
Table 4.5 Financial Performance of SACCOs
Key SA- Strongly Agree, A –Agree N – Neutral, D – Disagree, SD – Strongly Disagree
SA A N D SD T M
SASRA regulations have caused Saccos to
increase their Profitability
F 21 34 6 1 0 62 4.21 % 33.9 54.8 9.7 1.6 0 100 84.2
SASRA regulations have caused Saccos to
increase their Asset growth
F 18 32 10 2 0 62 4.06 % 29.0 51.6 16.1 3.2 0 100 81.2
SASRA regulations have caused Saccos to
increase their Membership growth
F 29 33 0 0 0 62 4.47 % 46.8 53.2 0 0 0 100 89.4
Source: (Field data, 2017)
The findings on the financial performance of the SACCOs indicate that 89.4% of the respondents
held that SASRA regulations have caused Saccos to increase their Membership growth, 84.2%
held that SASRA regulations have caused Saccos to increase their Profitability while 81.2% held
that SASRA regulations have caused Saccos to increase their Asset growth.
These findings indicate that the major way the Sasra regulations had affected the performance of
the Saccos was by enabling them to increase their membership growth. This could be attributed
45
to the fact the regulations increased the confident of potential members in the Saccos therefore
enabling them to deposit their funds with the Sacco.
These findings concur with a study conducted by Onguka (2014) who carried out a study on the
effect of regulations on the financial performance of deposit taking savings and credit
cooperative societies in Kenya. The study indicated that capital regulations, capital ratio,
liquidity and management efficiency significantly influence financial performance of the Deposit
Taking SACCOs. Most SACCOs reported improvement in their performance both in
membership, management efficiency, portfolio growth and loan cycle. Even though this was
attributed to a number of factors ranging from increased membership, high efficiency, high
demand and quick recoveries, one can easily attribute these results on positive influence of
SASRA regulation
46
CHAPTER FIVE
SUMMARY CONCLUSIONS AND RECOMMENDATIONS
5.0 Introduction
The study sought to determine the effects of Saccos societies regulatory authority’s regulation on
the financial performance of Saccos in Eldoret Kenya. This chapter covers the summary,
conclusions and recommendations of the study.
5.1 Summary of the Findings
The findings on the effect of minimum capital requirements on the financial performance of
SACCOs in Eldoret, Kenya indicate that 89.0% of the respondents held that the high minimum
capital requirement has limited the number of institutions that seek licensing as Saccos, 85.0%
held that the Sasra requirements have affected the ability of the saccos to maintain the capital
requirement ratios while 81.2% of the respondents held that the Sacco has been able to
adequately meet the core capital requirements.
These findings indicate that a majority of the respondents held that the high minimum capital
requirement has limited the number of institutions that seek licensing as Saccos. This therefore
implies that since the minimum capital requirement needed to license an entity as a Saccos was
high only few could attain it therefore limiting the number that seek licensing. This is crucial
since it ensured only capable firms are able to get licenses therefore safeguarding the funds of the
members.
The findings on the effect of minimum liquidity requirements on the financial performance of
SACCOs in Eldoret, Kenya indicate that 90.4% of the respondents held that the sacco has
increased the amounts of deposits available for its depositors, 82.8% held that as a result of
47
adhering to the SASRA regulation, the Sacco has been able to maintain a balanced ratio while
80.6% of the respondents held that the Sacco has reduced the number of short term liabilities it
offers in terms of loan.
These findings indicate that a majority of the respondents held that the sacco has increased the
amounts of deposits available for its depositors. This therefore implies that since the firms are
required to maintain a certain liquidity level, they have to have more funds at their disposal
which their members can easily access.
The findings on the effect of loan provisioning requirements on the financial performance of
SACCOs in Eldoret, Kenya indicate that 90.0% of the respondents held that the Sacco has been
able to formulate a loan provision requirement that has enabled it to maximize on performance,
84.8% held that the SASRA regulations have enabled the Sacco to reduce the number of Non-
Performing loans while 81.0% held that the Sacco has been able to maximize on the number of
total Loans.
These findings indicate that a majority of the respondents held that the Sacco has been able to
formulate a loan provision requirement that has enabled it to maximize on performance,. These
findings therefore imply that the regulations that were stipulated enabled the Saccos to come up
with loan provision requirements that enable them to maximize their performance.
The findings on the effect of minimum investment requirements on the financial performance of
SACCOs in Eldoret, Kenya indicate that 87.0% held that the Sacco has a policy that regulates its
investments made in line with SASRA regulation, 81.6% held that the SASRA regulations have
enabled the Sacco to reduce total Non-earning assets while 79.6% held that the SASRA
regulations have enabled the Sacco to increase its total assets.
48
These findings indicate that a majority of the respondents were of the opinion that the Sacco has
a policy that regulates its investments made in line with SASRA regulation. These findings
imply that the sasra regulation imposed on Saccos enabled the sacco to come up with a policy
that that regulates the investment safeguarding the funds of the members.
5.2 Conclusions
On the effect of minimum capital requirements on the financial Performance of SACCOs in
Eldoret, Kenya, the study concluded that the high minimum capital requirement has limited the
number of institutions that seek licensing as Saccos. This therefore implies that since the
minimum capital requirement needed to license an entity as a Saccos was high only few could
attain it therefore limiting the number that seek licensing. This is crucial since it ensured only
capable firms are able to get licenses therefore safeguarding the funds of the members.
On the effect of minimum liquidity requirements on the financial Performance of SACCOs in
Eldoret, Kenya, the study concluded that the sacco has increased the amounts of deposits
available for its depositors. This therefore implies that since the firms are required to maintain a
certain liquidity level, they have to have more funds at their disposal which their members can
easily access.
On the effect of loan provisioning requirements on the financial Performance of SACCOs in
Eldoret, Kenya, the study concluded that the Sacco has been able to formulate a loan provision
requirement that has enabled it to maximize on performance, The regulations that were stipulated
enabled the Saccos to come up with loan provision requirements that enable them to maximize
their performance.
49
On the effect of minimum investment requirements on the financial Performance of SACCOs in
Eldoret, Kenya, the study concluded that T the Sacco has a policy that regulates its investments
made in line with SASRA regulation. The sasra regulation imposed on Saccos enabled the sacco
to come up with a policy that that regulates the investment safeguarding the funds of the
members.
On the performance of the Saccos, the study concluded that the Sasra regulations affected the
performance of the Saccos by enabling them to increase their membership growth. This is
attributed to the fact the regulations increased the confident of potential members in the Saccos
therefore enabling them to deposit their funds with the Sacco.
5.3 Recommendations
Based on the findings of the study, the following recommendations were made;
i) The Sacco should employ the SASRA regulations to enable them to adequately meet the
core capital requirements.
ii) The sacco should strictly follow the sasra regulations which will enable them to reduce
the number of short term liabilities it offers in terms of loan. This will enable them to
safeguard themselves from losses that results from bad debts and enable their members to
access funds from the sacco.
iii) The Sacco should utilize the Sasra regulation to maximize on the number of total Loans.
They can use the policy guided by the regulations to enable them identify the most
suitable clientele and offer their services to potential clients who are assets and not bad
debts.
50
iv) The saccos should utilize the sasra regulations to formulate a policy that will enable them
increase the assets of the saccos and their shareholders.
51
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55
APPENDICES
APPENDIX I: LETTER OF INTRODUCTION
I am an undergraduate student of B.Com of Kisii University. A spartial requirement of the
coursework assessment, I am required to submit a research report on: EFFECTS OF SACCOS
SOCIETIES REGULATORY AUTHORITY’S REGULATION ON THE FINANCIAL
PERFORMANCE OF SACCOS IN ELDORET KENYA. I would highly appreciate if you
could kindly complete the Questionnaire to assist me collect data. Your information alongside
others will help me in my research and will be used strictly for academic purposes and will be
treated as confidential, therefore, do not write your name on the questionnaire.
Thank you in advance,
Yours faithfully,
Patricia Mugure Kamau
56
APPENDIX II: QUESTIONNAIRE
SECTION A: DEMOGRAPHIC DATA
1. Gender: Male [ ] Female [ ]
2. What is your highest level of education?
Secondary Form Four [ ] Certificate [ ] Diploma [ ]
Graduate [ ] Masters [ ] PHD [ ]
3. What is your age bracket?
Below 30 years [ ]
31 - 40 years [ ]
41 -50 years [ ]
51 - Above [ ]
4. How long have you worked in the department?
Below 1 year [ ]
2- 5 years [ ]
6-10years [ ]
11-15 years [ ]
Above `16 years [ ]
SECTION B:
5. To what extent do you agree with the following statements on the effect of minimum capital
requirements on the financial Performance of SACCOs in Eldoret, Kenya?
Key SA- Strongly Agree, A –Agree N – Neutral, D – Disagree, SD – Strongly Disagree
SA A N D SD
The Sasra requirements have affected the ability of
the saccos to maintain the capital requirement ratios
The high minimum capital requirement has limited
the number of institutions that seek licensing as
Saccos
57
The Sacco has been able to adequately meet the
core capital requirements
6. To what extent do you agree with the following statements on the effect of minimum
liquidity requirements on the financial Performance of SACCOs in Eldoret, Kenya?
Key SA- Strongly Agree, A –Agree N – Neutral, D – Disagree, SD – Strongly Disagree
SA A N D SD
The sacco has increased the amounts of deposits
available for its depositors
The Sacco has reduced the number of short term
liabilities it offers in terms of loan
As a result of adhering to the SASRA regulation,
the Sacco has been able to maintain a balanced
ratio
7. To what extent do you agree with the following statements on the effect of loan
provisioning requirements on the financial Performance of SACCOs in Eldoret, Kenya?
Key SA- Strongly Agree, A –Agree N – Neutral, D – Disagree, SD – Strongly Disagree
SA A N D SD
The SASRA regulations have enabled the Sacco to
reduce the number of Non-Performing loans
The Sacco has been able to maximize on the
number of total Loans
The Sacco has been able to formulate a aloan
provision requirement that has enabled it to
maximize on performance
58
8. To what extent do you agree with the following statements on the effect of minimum
investment requirements on the financial Performance of SACCOs in Eldoret, Kenya?
Key SA- Strongly Agree, A –Agree N – Neutral, D – Disagree, SD – Strongly Disagree
SA A N D SD
The SASRA regulations have enabled the Sacco to
reduce total Non-earning assets
The SASRA regulations have enabled the Sacco to
increase its total assets
The Sacco has a policy that regulates its investments
made in line with SASRA regulation
9. To what extent do you agree with the following statement on financial Performance of
SACCOs in Eldoret, Kenya?
Key SA- Strongly Agree, A –Agree N – Neutral, D – Disagree, SD – Strongly Disagree
SA A N D SD SASRA regulations have caused Saccos to increase
their Profitability
SASRA regulations have caused Saccos to increase
their Asset growth
SASRA regulations have caused Saccos to increase
their Membership growth
59
APPENDIX III: WORK PLAN
2017
March April May June July Aug Sep Oct
Topic
selection
Proposal
writing
1st
Correction
Defense
PilotingE1
Data
collection
Analysis
Preparation
of 1st Draft
2nd
Correction
Defense
Final
submission
60
APPENDIX IV: RESEARCH BUDGET
ITEM COST IN KSH.
Typing and printing 3,000
Photocopy 2,000
Writing materials 1,000
Pens and diskettes 1,000
Binding cost 3,000
Travelling 1000
To administer questionnaires 2,000
Miscellaneous 2,000
Total 15,000
61
APPENDIX V: INTRODUCTORY LETTER FOR DATA COLLCETION
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