Liquidity risk mitigation measures and financial performance of savings and credit co-operative societies (saccos) in Kisumu County- Kenya

Abstract

SACCOs just like other financial institutions are obliged to generate income which is adequate to cover all of their operational costs, inherent risks, and to enhance institutional capital. Given the current ever-dynamic business environment, they are exposed to liquidity risk that affects their financial performance. The objectives of the study were to analyze the liquidity risk mitigation approaches effects on financial performance of SACCOs and to establish the quantitative relationship between liquidity risk mitigation on liquidity levels and financial performance. The targeted population for the study constituted all SACCOs in Kisumu County. Inclusion in the population was determined by time of registration and operational activeness that were in existence from the year 2009 and formally registered with KUSCCO. In this bracket, there were 62 population units spread across the seven sub-counties in Kisumu County. Data was predominantly collected from prepared and availed financial statements, but supplemented by questionnaire feedbacks. Available data was analyzed by relational and descriptive statistics, and results presented in tables, models and graphs/charts. The study found that liquidity risk mitigation approaches adopted by different SACCOs had a significant effect on their financial performances. It was established that SACCOs adopted a more cautious position in their current liabilities which ensured that operating cash flows were sufficient to cover the short terms obligations entered by the firms. Also, the study found that debtor collection periods were longer that optimality despite the fact that they were strategically intended to sweeten voluntary membership, the SACCOs were either unjustifiably constraining their creditor payment periods or were conditioned to do so, but oblivious of the operational dangers. In conclusion, the study recommended a consecrated effort towards deploying efficient systems that seek to strengthen liquidity risk control fundamentals. The SACCOs needed professional guidance towards adopting policies on asset and liability management so that precautionary measures are undertaken on appropriate amounts of current liabilities to accept. Also SACCO management needed to be sensitized on payable and receivable periods so that they established the most yielding mark. Ideally, they needed relook at their strategies on shortening debt collection (to avoid default risks) while lengthening credit payment period (to allows payables transformation into a business financing source).Thus, self-optimization of the cash conversion cycle.