Factors Affecting Financial Sustainability of Savings and Credit Cooperative Societies.

Abstract

The cooperative movement in Kenya plays an important role in the country's economy. This is evident in the continued growth of the sector with a recorded membership of over 6.1 million people with domestic savings estimated at over Kshs 200 billion in 2007. In this sector, saving and credit cooperative societies are the most vibrant organizations with most developing front office service activities. With growth being experienced in these cooperatives, the study sought to investigate the factors that affected their financial sustainability especially for those operating in Nairobi. To achieve this, a descriptive research design was adopted that employed a census survey to be able to draw out the expected data. The data was analyzed using both descriptive and inferential statistics, which indicated that three of the selected variables, that is, competition, legislation and capital base had a positive relationship to the financial sustainability of the cooperatives while governance had a negative influence. Nonetheless, the regression results indicated that at least 69.4% of the variations in the factors influencing financial sustainability in cooperatives were explained by the independent variables. From the findings, the study recommended that the cooperatives could lobby for improved legislation in the sector to ensure their protection, operations and enable them to diversify their products. The study further recommended that the cooperatives could also improve on their current products and develop new ones in order to attract and retain new clients that in turn would result in an increase in their respective capital base and improve their competitiveness. For the cooperatives to remain financially stable they need to improve capital base by either introducing additional attractive savings products, increasing membership, raising minimum monthly contributions, giving good returns on members investments and giving assurance shareholders of security of their funds. In addition, the cooperatives could also improve the good governance structures to enhance shareholders confidence in the institutions, which in turn will attract more clients resulting to financial sustainability and growth. The study suggested that further research be conducted in this field on the rural based SACCOs and on those which do not offer FOSA to determine whether similar traits will be recorded or not.