Influence of Interest Rates Charged on Financial Performance of Savings and Credit Cooperative Societies: A Case of Nyamira County, Kenya

Abstract

IntroductionThe Kenya financial sector comprises players from banking industry, micro finance institutions, capital markets, insurance companies, mutual funds and development finance institutions seeking to gain competitive advantage over each other (CBK, 2007). Savings and Credit Cooperatives (SACCOs) form part of these financial institutions. Cooperative society is an independent association of persons united voluntarily to meet their common economic, cultural needs and aspirations; cooperative society is formed to pool scarce resources, eliminate the middlemen and achieve a common goal or interest (Republic of Kenya, 2008). Credit cooperatives are formed with the purpose of providing short-term loans and encouraging the habit of savings among members. Members of these organizations benefit from favorable terms catered to their needs as compared to other large financial institutions like commercial banks (Singla, 2008). The Deposit Taking Sacco Societies (DTSs) is part of the larger SACCO sub-sector in Kenya which comprises the deposit taking and the nondeposit taking Sacco Societies. The no deposit taking segment is composed of those Sacco Societies whose business is limited to mobilization of deposits (non-withdraw able) for purposes of lending to members. The deposits are nonwithdrawable in that they may be used as collaterals for loans only and can only be refunded upon the member's withdrawal (Sacco supervision annual report, 2014). Deposit Taking SACCOs (DTS) offer various basic savings and credit products and provide basic banking services (demand deposits, payments services and channels such as quasi banking services commonly known as ATMs), Front Office Service Activities (FOSAs) are licensed and supervised under the Sacco Societies Act of 2008 by the Sacco Societies Regulatory Authority (SASRA) (Kenya Financial Stability Report, 2010).According to Karanja (2015), SACCOs are financial institution whose main objectives are provision of savings and lending services to its members. Lending services are considered to be one of the major functions of any SACCO apart from saving since most of the SACCOs' earnings come from interest income. Lending services can be carried out if and only if as a SACCO you have specific laid down procedures and policies to be followed in giving out credit. This will determine who is eligible to access the credit services and who cannot access them. The procedures and guidelines that govern this process are known as Lending policies.Observations made by Ismail and Panni (2009) conclude that the financial industry has become one of the highly competitive industries with SACCOs not only competing among each other but also competing with banks and other financial institutions. Most credit products are easy to duplicate and SACCOs provide nearly identical services. The only way they can distinguish themselves is on the basis of their lending policy. A rational customer will always opt for favorable lending conditions and therefore a SACCO has to factor in the anticipations of the ...

Loan Collection Procedures and Financial Performance of Saccos in Mbarara City

“…Additionally, it's imperative to note that SACCOs basically depend on loans as their major asset and meaning the quality of the loans matters a lot concerning the financial performance of the SACCOs (Kamau, 2015) and (Katula & Kiriinya, 2018). In a position where the administered loans get collected as expected per the loan agreement prior endorsed by both parties, the SACCO has got absolute capacity to maintain and sustain itself and meet the expectations of the shareholders if the concept of loan collection procedures is well implemented and controlled for the betterment of the SACCO as regards financial performance (Miriti, 2014).…”