Assessment of The Effect of External Financing on Financial Performance of Savings And Credit Cooperatives A Case of Kisii Central District Kenya

Abstract

The Kenya cooperative sector plays a significant role in the Kenyan financial sector. It contributes 45 % of the country’s GDP. Previously lack of funding had been identified in a number of studies as one of the main constraint hindering the growth of this sector. In recent years however, a number of agencies (donor funded, govemment and private) have made lines of credit available to Saccos for the purpose of on-lending to Sacco clients. Despite the funding, recent studies indicated that many Saccos were unable to meet the demands of their clients for loans and withdrawal of savings. This brought forth the question of the relevance of extemal financing in promoting Sacco activities. The general objective of this study was to assess the effect of extemal financing on financial performance of Saccos in Kisii Central District. The study specifically sought to determine the factors influencing the need for external financing within cooperative societies, the contributions of external financing on financial perfonnance of Saccos and to establish the factors influencing financial performance of cooperative societies. A descriptive survey design was used to conduct the study. The target population was 243, Comprising board members and management staff from 12 Saccos in Kisii Central District. Proportionate random sampling was used to obtain a sample of 100 respondents. A semi structured questionnaire was developed, pre-tested and used for collecting quantitative data for the study from the sampled Saccos. Descriptive statistics were used for analyzing quantitative data. Analyzed data were presented in graphs and tables. The output from the study indicated that 88.9 % of the sample Saccos had received external financing whereas the remainder ll.l % had not received any form of external financing. Out of those sampled the majority 42 % had used short term finance. The major reasons for seeking extemal financing were; to increase capital for on —lending, to generate more institutional income and meet the needs of operational expenses. The funds led to high lending ability among Saccos; there was also increase in savings; and improvement in management practices. However, there was a corresponding increase in delinquency and costs and expenses, but generally the net effect was positive. The findings showed that financial performance was influenced by other variables as seen from the literature review. These variables include: financing and investment policies and portfolio quality. The assumption was that the Saccos that registered improved financial performance adhered to and implemented the requirements of these variables. The findings of this study will provide information that gives practical advice and guidelines to lenders and potential borrowers and it also adds to the body of knowledge in the cooperative sector. However, further research can be carried out to find out if Saccos do budget for their financial requirements.