Effect of credit management practices on financial performance of Savings and Credit Cooperative Societies in the hospitality industry in Nairobi

Abstract

SACCOs are in the business of safeguarding money and other valuables for their Members besides providing loans and offering investment financial services. Credit creation is the main income generating activity for the SACCOs. But this activity involves huge risks to both the lender and the borrower. The risk of a member not fulfilling his or her obligation as per the contract on due date or anytime thereafter can greatly jeopardize the smooth functioning of a SACCO's business. The general objective of the study was to analyze the effect of credit management practices on the performance of SACCOs in the hospitality industry in Nairobi. Descriptive research design was used with a target population of 67 active SACCOs in the hospitality industry based in Nairobi. A sample size of 10 SACCOs was selected using systematic random sampling technique. The questionnaire was formulated with both open ended and close ended questions based on the objectives of the study. Both the questionnaire and the data collection sheer were administered to the SACCO members through drop and pick method. The entry and analysis of data was done using SPSS (Statistical Package for Social Science version) program. The data has been presented in form of tabulations, charts, graphs and percentages. The fmdings of the study show that SACCOs have heavily relied on particular credit risk techniques which are not adequate to mitigate against loan losses in a dynamic and competitive lending environment. Secondly adequate credit risk monitoring and control mechanisms are lacking in majority of SACCOs which results in late detection and determination of non-performing and defaulted loans. Thirdly, governance structures that would ensure that the laid down credit risk policies are strictly adhered to, is lacking in majority of SACCOs.