Use of Multiple Linear Regressions to Study the Effect of Credit Management Practices on Financial Performance among Front Office Services Activity SACCOs in Nairobi County, Kenya

Abstract

Front Office Service Activities (FOSA) Saving and Credit Cooperative Societies (SACCOs) have provided an avenue to deal with poverty issues by addressing specific needs of destitute and poor people. Their performance generally relies upon the adequacy of their credit management practice on the grounds that the institution creates a large portion of their income from interest netted on extended Credits and members share contribution. Good Credit management is essential for a SACCOs' stability and continued profitability but credit delinquency is the reason for poor financial performance. The main objective of this research was to investigate the effect of credit management practices on financial performance among FOSA SACCOs in Nairobi county using multiple linear regression. The credit management practices investigated in this study included; credit appraisal practice, credit risk control practice, credit recovery practice and credit rationing practice. The research employed questionnaires administered to branch managers, credit manager and Finance managers in 37 FOSA SACCOS in Nairobi county. A total of 75 respondents were recorded in this research. The results indicated that multiple linear regression equation had a coefficient of determination (R²) of 0.537, with all the four credit management practices registering positive and significant influence on financial performance of FOSA SACCOs in Nairobi. It can therefore be concluded that credit appraisal practice, credit risk control practice, credit rationing practice and credit recovery practice are critical part of credit management practices for FOSA SACCOS in Nairobi. This study recommends that there is need for FOSA SACCOs to enhance their credit management practices in a bid to improve their financial performance.