Risk Management Practices and Organizational Performance of Deposit-taking SACCOs in Nairobi City County, Kenya

Abstract

An increase in the volume of corporate failures has made risk management to be considered integral to the performance of Savings and Credit Co-operative Societies (SACCOs) in Kenya, which have been investing over the years with the objective of maximizing their wealth. Towards this end, they employ various risk management techniques to mitigate risks they face in relation to their lending activities. The purpose of the study was to investigate the effect of risk management practices on the organizational performance of deposit-taking SACCOs in Kenya, which have been facing increased pressure from microfinance institutions, commercial banks and emerging digital financial platforms for customers. This study specifically focused on the effect of credit, liquidity, and market rate risk management practices. The research adopted a descriptive design that was grounded on the balance scorecard theory and the shiftability theory of liquidity. The study focused on 44 deposit-taking SACCOs located in Nairobi City County and collected both primary and secondary data. Data was analyzed using Statistical Package for Social Scientists (SPSS) program based on descriptive, correlational and least squares regression analysis. The findings were presented using various graphical representation tools such as charts and tables. Regression results revealed that credit risk management, liquidity risk and market risk management had a positive and significant effect on the organizational performance of deposit-taking SACCOs in Nairobi County. The study recommended that SACCOs should further enhance their strategic loan screening guidelines, develop stronger strategic partnerships with credit reference bureaus, and improve loan monitoring processes. The study also recommended that SACCOs should review its interest rate risk management strategies. Further, they should explore opportunities for product diversification to enhance their market share and competitiveness. Finally, it was recommended that SACCOs should adopt a dynamically strategic approach to risk management and regularly review their risk management strategies to ensure their relevance and effectiveness in the changing business and regulatory environment.