Investment diversification and financial performance of Deposit taking saccos in Kenya

Abstract

The study sought to investigate the relationship between investment diversification and the financial performance of deposit-taking SACCOs in Kenya. The specific objectives of the study were to examine the effect of investments in bond market, real estate, and FOSA products on financial performance of deposit-taking SACCOs in Kenya. The study was guided by Keynesian Theory of Investment, Prospect Theory, Modern Portfolio Theory, and Theory of investments. The target population was 178 SASRA licensed deposit taking SACCOs in Kenya and sample size was 36. Secondary was collected from the 36 SACCOs over a period of five years. The study employed a mixed-methods research design, integrating both quantitative and qualitative approaches. This data was analyzed using descriptive and regression analysis to investigate the relationship between investment strategies and financial performance. Different indicators, were deployed with Return on Assets (ROA), serving as the dependent variable. Diagnostic tests of multicollinearity, Hausman test, normality test, heteroskedasticity, test unit root test, confirmed the reliability and validity of the collected data. The descriptive statistics revealed the suitability of the sampled data. The inferential analysis demonstrated that investment in bonds, real estate and FOSA products have varying positive and significant relationships with financial performance of SACCOs with all the three variables having p-values less than 0.05. The coefficient of determination, R2 was 0.818 which indicates that the estimated regression equation can predict only 81.8% of the variation. The adjusted R2 was 0.815 which tells us there was 81.5% variation in the financial performance of SACCOs due to changes in investment in bonds, real estate and FOSA products. The research therefore recommends that SACCOs should strive to give top priority to integrating and utilizing investment portfolio, such as bonds, real estate and FOSA products in order to improve the financial performance and profitability of SACCOs in Kenya. The study suggests that research on other determinants of investments should be revisited to evaluate their effects on corporate performance and profitability in SACCOs.