Effect of Innovation on Financial Performance of Deposit Taking Saving and Credit Cooperative Societies in Laikipia County, Kenya

Abstract

Saccos are beneficial since they inject capital to the economy through various individuals, corporates and other institutions finances to pay back later at an agreed interest. Nevertheless, Saccos have been operating under declining profitability in Kenya. Therefore, the purpose of the study was to investigate the effect of innovation on financial performance of deposit taking saccos in Laikipia County, Kenya. Further, the specific objectives were to examine the effect of product innovation, process innovation, institutional innovation and policy innovation on financial performance. Additionally, the study was guided by three theories which are Credit creation theory, The Unified Theory of Acceptance and Use of Technology [UTAUT], and Resource-based view theory. Further on, the study used descriptive research design to collect data from nine deposit taking Saccos in Laikipia County. Specifically, the target population were 118 respondents who included 22 departmental managers and 96 support staff selected using census method. Notably, the study collected both primary and secondary data whereby primary data was collected in form of questionnaires from departmental managers and support staff. Secondary data was collected from financial reports such as income statement, whereby various financial ratios such as return on assets, return on equity, gross profit, net profit, liquidity ratio were noted. Further, the study conducted a pilot study in Bingwa and Nufaika Saccos in Kirinyaga County whose 2 departmental managers and 10 support staff took part in the piloting. The study sampled the piloting managers and staff through obtaining 10% of from the sample size. The study also measured reliability using Cronbach Alpha Coefficient method while face, content and construct types of validity were measured. Further, SPSS software version 24 was used to analyze and generate various statistical reports whereby, in the analysis of the questionnaire, the study examined and generated descriptive statistics such as frequency, percentage and mean. Additionally, the study generated various linear regression statistics such as model summary and ANOVA of each independent variable. Thereafter the study generated inferential statistics to test the general model. The study found out that the desired number of clients was not yet achieved due to bombastic requirements and processes when opening accounts or accessing loan products; The Sacco’s bid to incorporate ICT to assist in financial transaction such as having enough servers and skilled staff was still low hence increased system downtimes; There were poor management operations such that the process of coming up with new policies were either poorly done or done with less involvement of the junior staff; and the management took longer time when communicating to the staff on changes in policies on time. The study thus recommends that; The management of the Saccos should consult risk management professionals to further review on the requirements needed on each product and service the Sacco offers; The Sacco management should invest in secure servers to protect client’s information from unauthorized access or use; The Sacco management should restructure the decision-making procedures and processes to see to it that at consultation stage, the opinion of junior staff involved in operations is incorporated; and the Sacco management should develop policies on the time frames on when changes in policies should be communicated to staff