Influence of Capital Prudential Requirement on Technical Efficiency of Deposit Taking SACCOs in Kenya

Abstract

The objective of introducing a regulatory framework for the Deposit Taking SACCOs in Kenya was to not only protect members deposits, but was also intended to promote efficiency and performance. The period upon which all DTS were expected to have achieved full compliance lapsed in 2016. The extent to which the regulatory framework and specifically the regulation of capital has achieved its initial goals remains unassed.  The purpose of this study was to assess the influence of capital adequacy requirements on technical efficiency of DTS in Kenya. Data on selected inputs and outputs from 95 DTS were used in estimating their technical efficiencies based on data Envelopment Analysis (DEA). In the second stage, A fixed effect regression model was used to determine the influence of DTS compliance on capital adequacy ratio on the resulting bias corrected technical efficiencies. From our findings, it was evident that compliance with the set capital adequacy ratios by DTS was efficiency disenhancing and is negatively influencing allocative decisions of DTS managers. The study recommends for a review of the existing capital ratio with a view of establishing an optimal capital structure that facilitates better efficiency among the DTS in Kenya.