Effect of prudential regulatory standards on the financial performance of deposit taking SACCOS in Kenya

Abstract

A SACCO is a financial institution or organization that is formed by members who come together with a common goal or objective of offering savings and credit facilities at affordable interest rates usually less than the market rate among them. Previously the SACCOs have witnessed growth in their operations inform of increased membership, branch network expansions and some starting banking like services (FOSA) in view of increasing efficiency in their operations but due to competition in the industry this has led to liquidity issues, capital; violations, credit management malpractices and hence decreasing level of members confidence. This tremendous growth coupled with such failures indicated above in the SACCO industry made the Government of Kenya to come up with a legislation to monitor, supervise, control and regulate the operations of SACCOs and therefore this led to the introduction of the SACCO Societies Act (2008). Therefore the main theme of this study was to internalize the effect of Prudential Regulatory Standards on Financial Performance of Deposit taking SACCOs in Kenya. Specifically the study aimed at establishing the effect various prudential regulatory standards had on the financial performance of DTS in Kenya; such standards included only liquidity; loan provisioning and core capital requirements. The knowledge gap was attained by reviewing the relevant literature done by earlier scholars. All 175 DTS registered and operate in Kenya formed the target population where random sampling technique was employed and a comparative research design was used. With the help of SPSS data analysis was done both for inferential and descriptive statistics, also secondary source of data was used. The study found out that as per SASRA guidelines the liquidity requirement had high significant effect on financial performance of Deposit Taking SACCOs before enactment of SACCO prudential legislation. After introduction of PRS liquidity ratio and Loan allowance both had a high effect on financial performance of DTS in Kenya while Core Capital had less effect on financial performance of DTS during the two periods. Upcoming scholars should focus further research particularly on Core Capital influence on other aspects measures of performance of DTS other than the Net Income before Tax and Donations because their influence on Net Income before Tax and Donations was less significant.