Factors influencing financial performance of savings and credit cooperative societies in Kisumu County, Kenya

Savings and Credit Cooperative Societies (SACCOs) play an essential role in economic development as part of the financial system. In Kenya, 63% of population benefit from SACCOs. SACCOs are now a vital instrument embraced by Kenyan Government towards increasing financial inclusion especially now that financial transactions are tending towards a cashless economy. In light of this, various scholars have conducted studies on financial performance within the SACCO movement and using various variables. However, none of the scholars adopted the CAMELS model in their studies. This study was thus different from the previous ones as it adopted the CAMELS model in evaluating the factors that influence the financial performance of SACCOs measured by the return on asset (ROA). The study was guided by the following research Objectives: To determine the extent to which capital adequacy influences financial performance of SACCOs in Kisumu County; to evaluate the extent to which asset quality influences financial performance of SACCOs in Kisumu County; to find out how corporate management influences financial performance of SACCOs in Kisumu County and; to examine how liquidity management influences financial performance of SACCOs in Kisumu County. Towards meeting these objectives, the study adopted a survey research design, using 62 managing directors and finance managers at the 31registered SACCOs in the County that are operational. The sample size of 53 respondents was derived using the Yamane model; pilot testing was done on 6 SACCOs to test reliability and validity of the research tools. In the study, both secondary and primary data were used. While secondary data was obtained from authoritative documentations from the target units, primary data was collected by use of semi-structured questionnaires administered to 31 managing directors and 22 finance managers of SACCOs in Kisumu County. Obtained data was analyzed by use of descriptive and inferential statistical techniques. For non-quantitative data, content analysis was adopted. The study results were presented in tabular and chart formats. The study concluded that financial performance of SACCOs in Kisumu County is influenced by capital Adequacy, Asset Quality, management efficiency and Liquidity management. As explained by adjusted R2 of 0.4211% implying that capital adequacy, Asset Quality, and Liquidity Management, holding other factors constant contributed 42.11% of the variation in the Return on Asset. The p- value of 0.05α obtained implied that the regression model was significant in predicting the extent to which Return on Asset is influenced by predictor variables as it was less than α= 0.05. The study established that Capital Adequacy plays a key role in determining the financial performance of SACCOs. With regard to management efficiency the study realized that there was a strong positive correlation with financial performance. The study recommended that the management of the SACCOs to take good care of the Assets as they play a major role in generating the finances. The SACCOs also needed to put in place a proper management team to ensure prudent management of finances.