Effects Of Financial Restructuring On Financial Performance Of Deposit Taking Sacco's In Nairobi County

Abstract

Sacco’s are the key microfinancing institutions for mobilization of financial resources for various development activities and where instability in the Sacco’s exist, financial restructuring is key in turning it round to stability and profitability. This study investigated the effects of financial restructuring on the financial performance of deposit taking Sacco’s in Kenya. The objectives included undertaking an in-depth study based on debt, equity, deposits restructuring. Loanable funds Theory, Liquidity Preference Theory and Pecking Order Theory informed the study. This study was based on 39 deposit taking Sacco’s in Nairobi County. This study covered a 10 year period from 2010 to 2019. A descriptive research design was adopted. The research adopted the use of secondary data. The secondary data was obtained from SASRA registry comprising of audited financial statements submitted by the deposit-taking SACCOs. This study used autocorrelation tests, heteroscedasticity tests, multicollinearity tests, normality assumptions and Hausman test to evaluate the data collected before the actual analysis. STATA software was used to conduct the analysis. The findings indicated that a positive and significant relationship between Debt restructuring and return on assets for the deposit taking Sacco’s in Nairobi County. There was a positive and significant relationship between Equity restructuring and return on assets for the deposit taking Sacco’s in Nairobi County. Deposit restructuring had a negative and significant relationship with return on assets for the deposit taking Sacco’s in Nairobi County. This implied that an increase in debt restructuring, equity restructuring and deposit restructuring leads to a significant increase on return on assets for the deposits taking Sacco’s in Nairobi County. The study concluded that there is a strong correlation between debt restructuring, equity restructuring and deposit restructuring on return on asset for the deposit taking Sacco’s. The study recommends that the Sacco management should raise their lending capacity by seeking controlled external borrowing to raise their immediate cash for lending when in distress. However the external borrowing should be controlled to avoid increasing in debts as compared to the total assets. The Sacco management should maintain their core capital as a Sacco reserve. The study recommends that the Sacco management should formulate a mechanism to raise their lending capacity by periodically increasing their minimum member deposits. This will increase the liquid cash for lending which is the core activity of the Sacco. However the minimum deposit should be structured to accommodate all classes of the depositors to avoid discouraging the members.