The Effect of Financing Strategies on the Liquidity of Savings and Credit Co-operatives Societies Licensed by Sacco Societies Regulatory Authority Operating in Nairobi County

Abstract

Savings And Credit Co-operative Societies (SACCOS) are essential institutions as they are able to advance loans at interest rates lower than those charged by other financial institutions. In fact, the core objective of SACCOS is to ensure members empowerment through mobilization of savings and disbursement of credit. In Kenya, SACCOS have mobilized over Kshs.200 billion in savings, accounting for over 30% to National Domestic Saving. However, as financial institution, SACCOS should manage the demand and supply of liquidity in an appropriate manner in order to safely run their business, maintain good relations with the stakeholders and avoid liquidity problems. When firms have problems with liquidity they may defer their payments to creditors which is a harmful for companies and can result in several consequences such as worse credit terms in the future.SACCOS have a high exposure to credit risk as well as operational risks; these debts may lead to collapse of the SACCOS. This study sought to establish the effect of financing strategies on the liquidity of savings and co-operative societies licensed by SASRA. Specifically looking at effect of debt financing, equity financing, members‟ savings, income source diversification and the operational variable of micro-economic variables. This study employed descriptive survey. Populations of the study included the 34 SACCOS licensed by SASRA in Nairobi County. A census survey of all the 34 SACCOS was carried out. This study collected secondary data from financial statements of the SACCOS involved. Descriptive statistics as well as inferential statistics were carried out. According to the study‟s results, all the factors were significant in determining SACCOS liquidity. Leverage was found to influence the liquidity of SACCOS licensed by SASRA operating in Nairobi County most. The four independent variables that were studied; leverage, members‟ savings, diversification, and macro-economic variables explain a substantial 68.7% of liquidity of SACCOS operating in Nairobi County as represented by Coefficient of determination. The study concludes that financial strategies positively and significantly influence the liquidity in SACCOS licensed by SASRA operating in Nairobi County. The study recommended that SACCOS should approve strategy and significant policies related to the management of liquidity risk under both normal and stressed conditions and review and approve these policies frequently as need arise. Also, it was recommended that a structure should be put in place to effectively execute financial strategies and also develop methodologies and policies to determine the level of earmarked liquid assets.