The Relationship Between Loan Policy and Financial Performance in Saccos in Nairobi County, Kenya

Abstract

The purpose of this study was to establish the relationship between loan policy and financial performance in Nairobi County in Kenya. According to the Ministry of Cooperative Development and Marketing Annual Reports, Nairobi County has the majority of SACCOs in Kenya and thus the area of focus in this study. SACCOs play a crucial role in socio-economic development by promoting thrift among its members and affording them an opportunity for accumulating their savings and obtaining loan at fair and reasonable rates of interest. This study sought to enlighten SACCOs on the importance of loan policies for improved financial performance. The researcher sampled 36 SACCOs using stratified sampling. The research was carried out using both primary and secondary data. The data collected was processed and analyzed using statistical packages for social sciences (SPSS) software. Correlation and multiple linear regression analysis were used to test the relationship between dependent and independent variables. The findings of the study recommended that SACCOs should continuously review credit policies to enhance the evaluation of loan applications and ensure that loan applications are appraised and ranked according to merit. The findings also recommended that SACCOs to ensure timely loan disbursement to facilitate loan recovery and minimize administrative costs which would lead to growth of SACCOs’ wealth. Further, it was recommended that SACCOs should establish irrecoverable loan provision policies that make adequate loan provisions to promote safety of funds and ensure that loan assets are not overstated. Additionally, the government should review legal framework for the SACCOs to ensure sound loan policies are put in place for improved financial performance.