The Relationship Between Loan Default and the Financial Performance of Sacco’s in Kenya

Abstract

Loan default is the failure to pay back a loan which may occur if the debtor is either unwilling or unable to pay its debt. A defaulted loan is a cost to SACCOs in terms of forgone or delayed interest, high recovery cost and finance cost associated with external borrowing. The study sought to review the relationship between loan default and the financial performance of Savings and Credit Cooperative Societies (SACCOs) in Kenya. The research design used in this study was descriptive design. The design was appropriate because the study involved in depth information on the relationship between loan default and the financial performance of SACCOs. Data was collected from the census of 45 SACCCOs in Nairobi County using secondary data from SASRA, which is the regulatory body thus the study concentrated on 20 SACCOs. The data was reviewed, and analyzed using (SPSS version 18) both descriptive and inferential statistics. The study findings indicated that there is strong negative relationship between the loan default and the profitability of these SACCOS. The tests showed that the overall regression model is a good fit for the data as the independent variables statistically and significantly predict the dependent variable. The regression model is a good fit of the data. Personality types are predisposed to loan default why credit markets may fail. The study recommends that SACCO should; continuously review credit policies, establish irrecoverable loan provision policies, and character of loan applicants.