Influence of corporate governance on financial performance of cooperative societies: a case of savings and credit cooperative organizations in Meru county, Kenya

Abstract

Corporate governance is of great importance for financial performance. In Africa, Savings and Credit Cooperative Organizations (SACCOs) have been growing as a strong tool to meet financial needs. This is because, cooperatives are well placed to bring about equitable development and justice. However, SACCOs like any other business, are faced with challenges in their quest for growth and corporate governance stand as one of the main challenges facing SACCOs. Some of these SACCOs have come under spotlight for cases of mismanagement and a number of them have closed and therefore if this trend is not checked, it may lead to depletion of SACCOs’ funds and collapse of more SACCOs in Kenya. This study therefore, investigated the influence of corporate governance on financial performance of cooperative societies a case of Savings and Credit Cooperative Organizations (SACCOs) in Meru County, Kenya. The study focused on influence of; risk management, democracy in management, training of directors and appraisal of directors. The findings of this study will hopefully be beneficial to executive members of SACCOs and other cooperative societies in improving the performance of cooperative societies and enable them to compete globally. This study applied a descriptive survey design. The study focused on 647 directors in all the 56 SACCOs in Meru County and 8 sub-county officers. The study applied a proportionate stratified random sampling method to select a sample of 247 directors. The study also focused on 8 sub-county officers therefore making the total sample to be 255. Data was collected through the questionnaire which comprised of both close ended and open ended questions. The data was coded in SPSS Vs 21 through which analysis was conducted and the results of the findings were presented in tabular form to reflect both descriptive and regression analysis. The study found out that 40.8% of directors said that credit risk in SACCOs was high. The study also found out that only 5% of financial performance of SACCOs can be explained by training of directors. Further the study also found out that 52.5% of directors are not appraised. The study also revealed that 31.9% of financial performance of SACCOs can be explained by democracy in management of the SACCO. The study recommended that directors of SACCOs need to put up strong credit controls so as to lower the credit risks in their organization. In addition, SASRA needs to regulate on the appraisal of SACCO directors to ensure that all SACCOs carry out directors’ appraisal