Credit Lending Models and Loan Performance of Deposit Taking Savings and Credit Cooperative Societies in Kenya

Abstract

The overarching purpose of the research was to analyze the impact that various credit-lending models had on the loan performance of deposit-taking savings and credit cooperative societies located in Kenya. Specifically, the research focused on group lending model, individual lending model, digital credit model and cooperative lending model on how loans perform among deposit taking savings and credit cooperative societies in Kenya. The research also sought to find out the joint effect of group lending model, individual lending model, cooperative lending model and digital credit model on how deposit taking savings and credit cooperative society’s loans perform in Kenya. The research adopted a descriptive cross-sectional approach. The targeted population were all DT-SACCOs as per their registration with SACCO Societies Regulatory Authority. There are one hundred and seventy-six (176) as of December 2022. It was therefore a census study. The study found out that group-lending models, individual lending model, digital credit lending and cooperative lending were adopted by the DT-SACCOs moderately. The research established that the size of the DT-SACCOs and the lending models used accounted for 97.9% of changes in loan performance. The consequence is that other factors not considered in the model were responsible for only 2.1% of variances in loan performance. Further, credit lending models significantly affect how DT-SACCOs loans perform in Kenya. This implied that effective implementation of the credit lending models led to improved loan performance of DT-SACCOs. The study reached a conclusion that credit lending models have a significant effect on how T-SACCOs loans in Kenya perform. Further, the DT-SACCOs adopted on an average basis the credit lending models. Lastly, individual lending model and total assets significantly affected loan performance. Group lending model, digital lending model, and cooperative lending model however do not significantly affect how the loans perform. The research recommended that the managers of the DT-SACCOs should establish mechanisms for improving individual loan processing and development of competitive individual loan products. The management should also ensure a more comprehensive understanding of the best loan standards to be embraced regarding an individual borrower’s lending terms and conditions. The management of DT-SACCOs should also put adequate mechanisms in place to regulate group lending, digital lending, and cooperative lending practices, since they affect loan performance, though insignificantly. Increased use of digital platforms would be given emphasis by management, as new frontiers for increasing loan performance. The digital transaction platforms would be improved by the management to enhance financial inclusion.