Effect of the growth of savings and credit co-operative societies’ front office services activity on demand for credit by members

Abstract

SACCO’s have always relied on voluntary member contributions to boost their capital base to provide loan to members. In the recent past many Sacco’s have introduced FOSA which is a deposit taking function. This has also seen the rise of branches that are opened by Sacco’s which seek to attract even non-members. Sacco’s as a subsector of financial sector contributes substantially to the economy, contributing slightly over 40 percent of the GDP. According to the IMF (2011), deposits taking Sacco’s have a larger controlling stake in total deposits and assets of the overall Sacco industry in Kenya. With a myriad of studies on pertinent issues on SACCOS in the country, there has been no research work done on the key drivers of SACCO FOSA model a need that this study addresses. The study intended to answer the question: what is the effect of the growth of Sacco FOSA activity in Sacco’s regulated by SASRA and the demand for credit from members? The study adopted correlation research design in which quantity data was collected and analyzed in order to describe the specific phenomenon in its current trends and linkages between different factors at the current time. The study population consisted of the 135 Sacco’s duly licensed to carry out deposit- taking Sacco business in Kenya for the financial year ending on 31st December, 2014 by SASRA. The deposit taking Sacco’s regulated by SASRA was selected through Cluster sampling. The sample size of the study was 30 Sacco’s which are registered with SASRA. The study considered for a period of 3 years from 2011, two years after SASRA was mandated to regulate deposit taking Sacco’s, 2013. Questionnaires were used to obtain important information about the population. The study used both qualitative and quantitative techniques in analyzing the data, by both descriptive and inferential statistics, whereby t- test was used to determine if there is significant relationship between growth of Sacco FOSA and demand for credit among members. Results reveal there good, significant and positive associations between demand for credit by members and all the predictor variables, that is, Saving Products, Automated Teller Machines, Salary Processing Account Types, Cards Offered, Money Transfer Services and Loan Products. Savings products, Loan products, Salary Processing Account Types and Cards Offered have particularly shown strongest positive influence on the Demand for credit by members. Based on this, the study recommends that SACCOS that do not operate FOSAs should be encouraged to open so that members can benefit from FOSA services.