Determinants of savings:- The case of savings and credit co-operative societies in Kenya

Abstract

The Co-operative Sector is a very important sector because it provides employment, investment funds and reduces dependence on external financial resources among others. The aim of this study was to identify the determinants of corporate savings in savings and credit co-operative societies (SACCOS) with a view to recommend some policies which can enhance the savings rate in this sector. It was also intended to estimate the demand functions for loans and share capital/deposits in this sector. Since time-series data exist in a haphazard manner, cross-sectional data was used from fifty SACCOS in Nairobi. In order to eliminate specification and simultaneity biases, simultaneous equation models were used to estimate the intended Savings, Assets, Deposits/ Share Capital and Loans functions. From the results, assets, profits, investment undertakings and loans advanced to members were found to be. the main determinants of corporate savings in SACCOS. Loans, membership and average monthly contribution per member were the main determinants of Deposits/Share Capital. And finally, Deposits/Share Capital, loan defaults, investment undertakings and loan outstanding were the main determinants of loans advanced to members. Various policy-implications were recommended all based on these functions and the major determinants of these variables. For example it was recommended that in order to increase deposits, there is need, for mass membership drive plus extensive membership education.