Effect of Loan Default Rate on Financial Performance of Savings and Credit Cooperative Societies Innarok, County Kenya

Abstract

In Kenya cooperative movement is one of the highly valued strategies used to enhance resource mobilisation and use. However, studies on factors that contribute to the performance of these cooperatives have produced mixed results that calls for further research in the same. This paper sought to further examine the effect of loan default rate on the financial performance of Savings and Credit Cooperative Societies in Narok County, Kenya. Financial performance was measured by use of return on asset and return on equity. Cross sectional research design was applied in this study. The target population comprised of 20 registered and active SACCOs in Narok County. Purpose sampling was used to select only 17 of the SACCOs which had been active for the six years period of the study. Secondary data from audited financial report between 2013 and 2018 was collected and used for the analysis. Both descriptive and inferential statistics were used to analyse the relationship between the variables. Statistical Package for Social Sciences version 23 and Microsoft Excel package were used as appropriate tool to analyse and present the results. The study hypothesis was tested at a 0.05 significant level. From the findings it was established that loan default rate had a positive statistical significant effect to financial performance of the SACCOs in Narok County. The null hypothesis on loan default rate was rejected as it had a p-value of less than 0.05.It was concluded that the rate of loan default among the SACCOs is a strong predictor of their financial performance. The study recommended that the SACCOs should put emphasis on ensuring members are able to repay their loans on time to enhance financial performance. The results are very significant and will go a long way to assist SACCOs to enhance their financial performance by re-assessing their loan advancement and recovery strategy among their members.