Effects Of Loan Management Techniques On Financial Performance Of Deposit Taking Savings And Credit Cooperative Societies In Kisii County, Kenya

Abstract

Loan Management techniques are strategies used by lenders to ensure that loan facilities extended to the clients are well serviced in order to ensure efficiency and effectiveness in the operations of the firm. The Deposit Taking Sacco Societies (DTSs) are an integral part of the larger Sacco sub sector in Kenya which is majorly concerned with Deposit Taking and Non-Deposit Taking Sacco Societies. Besides taking deposits, they also issue loans to their members where the deposits act as collateral. Different DTSs have been adopting different strategies to manage loans such as interest rates, loan follow ups, customer credit information sharing, loan appraisal, and group lending. However, there is a dearth of literature on the effects of loan management techniques on financial performance of DTSs. Therefore, this study sought to determine the effects of selected loan management techniques on financial performance of DTSs in Kisii County. The following objectives guided the study; to establish the effect of interest rate technique on financial performance in DTSs, to determine the effect of loan follow-up techniques on financial performance in DTSs, to find out the effect of sharing customer credit information techniques on financial performance in DTSs, to determine the effect of loan appraisal techniques on financial performance in DTSs and to find out the effect of group lending techniques on financial performance in DTSs. This study was guided by the following theories; expectation theory, liquidity preference theory and the modern portfolio theory. The study adopted survey research design that targeted all the seven DTSs operating in Kisii County according to SASRA report (2016); Gusii Mwalimu SACCO, Kenya Achievers SACCO, Wakenya Pamoja SACCO, Egerton SACCO, Mwalimu National SACCO, Afya SACCO and vision point SACCO. Seventy respondents consisting of Chief Executive Officers, Credit Managers, Finance Managers, Internal auditors and Loan field Officers were targeted. Since the targeted population was small, census sampling was adopted. Questionnaires were utilised to gather primary data whereas a data collection form was used to gather secondary data. Data was analyzed using descriptive statistics (mean, standard deviation and percentages). Multiple regression model was used to determine the effect of loan management techniques on financial performance of DTS in Kisii County. The study revealed that loan management techniques positively affected financial performance of DTSs in Kisii County. It was also revealed that the effect was generally weak because r2 was 0.269. Based on the beta co-efficients, interest rate, loan follow-ups, loan appraisal and sharing of customer credit information had a positive effect on financial performance of DTSs whereas group lending had a negative effect. Based on the discussions of the findings, the following recommendations were made; DTSs should develop policies that aim at a thorough appraisal of borrowers before they are given loans. DTSs should also review their interest rates regularly based on the cap set by the central bank, this will assist in controlling the borrowing rate and also the repayment of the loans hence improving the financial performance of the DTSs. DTSs should register with credit reference bureau to ensure they access and share customer credit information which will enhance their decision making capabilities. Lastly, DTSs should enhance group lending in order to bring about joint liability which will in turn lead reduced incidences of defaulters.