Effect Of Enterprise Risk Management Practices On Performance Of Savings And Credit Cooperatives In Kenya: A Case Of Savings And Credit Cooperative Societies Regulatory Authority Guidelines

Abstract

The existence of risk in many sectors of the economies has been a nightmare for management of organizations. SACCOs owing to the nature of the deposit taking and credit issuing business are vulnerable to a quite large number of risks both internally and externally. Enterprise Risk Management (ERM) seeks to address and manage risks across all departments of an entity. Before 2008, SACCOs had no regulatory guidelines that helped them in managing risks. Thus, risk management was left at the discretion of the individuals SACCOs that saw most fail. The Sacco societies Act came into place in 2008 and the Sacco regulation took effect as from 2010. Hence, there is a need for a study to assess the effect of enterprise risk management practices on performance of SACCOs in Kenya: a case of SASRA guidelines. This study had the following specific objectives; to establish the effect of share capital adequacy, liquidity management, and asset quality on performance of Savings and Credit Cooperatives Societies in Kenya. The study adopted a panel data analysis where secondary data was collected and analyzed. Data was collected for the period 2011 to 2016 from the Sacco Society Regulatory Reports on SACCO supervision reports. The study had a target population of all the SACCOs and a sample of 41 SACCOs was selected for data analysis. The study used panel regression (pooled panel regression with robust standard errors) to investigate the relationship between the independent variables and the dependent variable. The study results indicated that liquidity and asset quality were statistically significant predictors of ROA for the deposit taking SACCOs while the relationship between capital adequacy and ROA was not statistically significant. Based on the study findings discussed above, several recommendations are provided. SACCOs need to improve their capital position to achieve benefits of good capitalization to profitability. Secondly, deposit taking SACCOs should observe their liquidity levels to ensure that they are liquid enough to perform their activities. Poor liquidity levels in SACCOs point to high riskiness and the inability of the SACCO to perform their short term obligations competently. Further, it is recommended that deposit taking SACCOs to observe efficiency and effectiveness in dealing with delinquencies since the greatest asset of a given SACCO is in terms of performing loans. A high number of non-performing loans affects the SACCOs operations and has a trickledown effect on the SACCOs financial performance. The study recommends that SASRA should offer guidelines on how to sustainably adopt the prudential guidelines issued by them since they positively affect the performance of deposit taking SACCOS in Kenya.