EFFECTS OF CREDIT RISK MANAGEMENT ON FINANCIAL PERFORMANCE OF SACCOS: A CASE STUDY OF HARAMBEE SACCO
Nancy Kibui - Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Makori Moronge - Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
The General objective of this study was to analyze the effect of credit risk management practices on the financial performance of Harambee Sacco. Specifically, the study investigated the effects of client appraisal methods, credit policy formulation, modern credit risk monitoring and control methods and systematic defaulter follow-up and Loan defaulter reports on financial performance of SACCOs. This study was carried out through a descriptive research method. The target population of this study was credit officers of Harambee SACCO, Nairobi. Simple random sampling technique was used. Of the 178 credit officers, the researcher took a sample of 53 respondents. The questionnaire was used to obtain and gather information to analyze and compare different practices of credit risk management in the SACCO. Responses in the questionnaires was tabulated, coded and processed by use of a computer Statistical Package for Social Science (SPSS v.21) programme to analyze the data. The study found that the Sacco used guarantors, Collaterization, shareholding and insurance as risk mitigation strategies in credit risk management. The study also found out that credit risk management help to improve the performance of Saccos to a great extent. Additionally the study found out that there was a customized computer based reporting system which allow for detection of overdue loans in the shortest possible time. In line with its findings the study recommends that management of the Saccos should carefully consider their client appraisal methods, systematic defaulter follow-up and loan defaulter reports, credit policy and credit risk monitoring and control methods as they all affect the financial performance of the Saccos. Moreover, management of Saccos in Kenya should ensure that there is adoption and implementation of sound credit risk management practices and that there is appropriate risk-return tradeoff policy.
