EMPIRICAL DETERMINATION OF EFFECTS OF CREDIT RISK MANAGEMENT ON MICROCREDIT LOAN PORTFOLIO QUALITY IN DEPOSIT TAKING SACCO’S IN KENYA
EMPIRICAL DETERMINATION OF EFFECTS OF CREDIT RISK MANAGEMENT ON MICROCREDIT LOAN PORTFOLIO QUALITY IN DEPOSIT TAKING SACCO’S IN KENYA
Caroline Akoth Okuku - Student, Master of Business Administration, Department of Accounting and Finance, Maseno University,Kenya
Dr. Benjamin Ombok - Lecturer, Department of Accounting and Finance, Maseno University, Kenya
ABSTRACT
Savings and Credit Cooperatives were invented in German to promote savings and curb the exorbitant interest rates that were being charged to the indebted rural poor. Despite this nobble idea, micro credit loans portfolio performance has been declining. In Africa, SACCOs are facing challenges associated with asset quality. In Kenya, SACCOs equally face similar challenges that SACCOs are facing at global, continental and regional levels despite their importance in the economy. Deposit Taking SACCOs have continued to record a lower Portfolio at Risk at 8.40% in 2022 compared to 13.80% for Commercial Banking Institutions and 31.78% for Microfinance banks in the same period. Even though the percentages of Portfolio at Risk in deposit taking saccos are the lowest in the financial sector, the figures of the loans written off are significant at 15.27, 19.38, 24.19, 34.05 and 36.95 billion from year 2018 to year 2022 respectively. Portfolio at risk which measures loan quality also show a poor trend of 6.3%, 6.15%, 8.39%, 8.86% and 8.4% for the years 2018-2022 respectively. Existing literature commonly cover general DT Saccos portfolio, but with limited attention to Microcredit loan, as credit product accessed by over 76% of borrowers in Kenya. It is not known to what extent the microcredit loans are contributing to the recorded portfolio at risk of DT SACCOs in Kenya. Therefore, this study sought to determine effect of credit risk management on micro credit loans as a product on portfolio quality in deposit taking SACCOs in Kenya. The study adopted a descriptive and correlational research design with a target population of 84 licensed Saccos using a purposive sampling technique consisting of identified DT Saccos which have micro credit loans as product within their portfolio. Results of the study revealed that Credit Risk Management has a significant effect on portfolio quality (p=0.000<0.05); this imply that deposit taking Saccos should enhance their credit risk management on microcredit loans in a bid to improve their portfolio quality. The study is important for industry practitioners, regulators and policy makers.
