The Effects of Regulatory Compliance on Financial Performance of Deposit Taking Saccos, a Case Study of South Rift Region

Abstract

The SACCO sector is considered both economically and socially important, sectoral report indicates that nearly 5% of savings and Credit Cooperative Societies (SACCOs) collapse every year and registered members withdraw their membership annually. The deteriorating trend is common in most of the societies despite government’s financial regulations being in operation since 2004. The objective of this study was to assess the effect of regulatory compliance on financial performance for the deposit taking SACCOs in South Rift Region and extent of compliance of the regulations. The study used descriptive research design to investigate the relationship between regulation and financial performance. The study was conducted in the twenty eight deposit taking SACCOs in the south rift region. Data was collected using the structured questionnaires and secondary data. Data was analysed using a statistical software (SPSS) version 20. In addition the relationship was analysed using the regression equation modelled around all the multiple variables that affect performance. Following the study it was possible to conclude that, most SACCOs have complied with the financial provisions of the regulatory requirements. The main compliance noted where separation of the member shares from the share capital, liquidity management systems and enhanced credit policies developed in most SACCOs. The SACCOs were also within the investment thresholds of the regulatory requirements. All the SACCOs complied with the financial reporting requirements. The study parameters and the variables evaluated to establish and relationship between financial performance and regulatory provisions concluded as follows, Governance had not impacted greatly to the financial performance; this is attributed to the resistance of change in the governance structure. The reporting requirements and prudential requirements had a good causal effect on profitability and financial performance. Compliance of the above provision enabled the SACCOs to address performance issues on time. Most SACCOs are facing the following challenges as they implement and comply with the regulatory provisions. Lack of adequate management information systems, human capital gaps, weak governance structures and high cost of compliance.