Determinants of Profit for Saccos in Kenya: A Case Study of Wanandege Sacco Ltd.

Abstract

SACCOs ensure their sustainability through adequate capital while continuing to serve their communities through demand-driven products, without necessarily being considered philanthropic organizations. Therefore, the research project's main objective was to ascertain the determinants of profitability of SACCO's in Kenya with a focus on Wanandege Sacco guided by these specific objectives; investigating the effects of product diversity on the profitability, studying the effect of product pricing on the profitability, finding out the effects of NPLs on profits and ascertaining how interest rates affect profits. The research project relied on both primary and secondary data. The study found out that product diversity had highest degree on profitability of Sacco's and that Sacco products were well diversified with many satisfied with the channels put in place to access the products. The study also found out that interest offered can sustain the Sacco in the long run and that the interest being offered was slightly higher as compared to other Sacco's. It further found out that there exists NPL's which can be reduced through strong internal controls as well as following the set standards in issuing of Loans. Finally, the study again found out that when pricing the Sacco's products, the market factors were considered thus the product price reflected true market position. The study concluded that Wanandege Sacco's Profitability is affected by Product diversity, Product pricing, Non-performing loans and Interest rate being charged on products. The study further concluded that Pricing of products is not only a major issue in many industries but also a surviving issue in which Sacco's have to be keen on not to lose its members thus Sacco's savings. The existence of Non-performing loans as the study showed impacted negatively on Sacco's profitability thus due diligence should be exercised while advancing loans to members based on ability to repay. The study recommends that Sacco's should expand their products to other areas of the economy were not much has been invested due to security issues because Sacco's loans are guaranteed by members thus a risk taking Sacco will grow faster than a risk averse Sacco. Moreover, the study further recommends that Sacco's pricing of the products should be lower than other financial institution because they are less restricted in terms of raising money and government regulations. This will make them more attractive not only to the members but also to potential members and general public. The study finally recommends that Interest rates charged by Sacco's should be significantly lower since their lending rates are not dictated by Central Bank of Kenya thus can use that opportunity for market penetration and increase its market share thus boosting their earnings.