Credit risk management practices, technological innovation and loan performance: a study of registered deposit taking SACCOS in Kenya

Abstract

Savings and Credit Cooperative Organizations in Kenya have embraced technological innovation such as mobile SACCOs, online SACCOs, electronic fund transfer and branch networking to improve service delivery and increase the number of loyal customers in their SACCOs. However, Kenyan SACCOs are still experiencing increased non-performing loans. Therefore, the main aim of the study was to investigate credit risk management practices, technological innovation and loan performance of registered deposit taking SACCOS in Kenya. Specific objectives were to determine whether collection policy, client appraisal, credit risk control and credit terms effect loan performance and whether technological innovation moderates their relationship. The study was guided by credit risk, liquidity, and innovation diffusion theories. This study adopted an explanatory design. The study targeted registered deposit taking SACCOS in Kenya. A questionnaire was used to collect data for the study. Descriptive inferential statistics was used in data analysis. Descriptive statistics included frequency, percentages, mean, standard deviation skewness, kurtosis, minimum and maximum. Inferential statistics were correlation and regressions analysis used for testing hypotheses. The analyzed data were presented using tables and charts. The findings indicated that, collection policy had a positive and significant effect on loan performance of SACCOs (β 1 =0.427, p<.05). Client appraisal practice had a positive and significant effect on loan performance of SACCOs (β 2 =0.131, p<.05). Credit risk control practice had a positive and significant effect on loan performance of SACCOs (β 3 =0.170, p<.05). Credit terms had a positive and significant effect on loan performance of SACCOs (β 4 =0.208, p<.05). Technological innovation had an enhancing moderating effect on the relationship between collection policy and loan performance (β=-0.170, p<.05). The technological innovation had an enhancing moderating effect on the relationship between client appraisal and loan performance (β=0.019, p<.05). Technological innovation had an enhancing moderating effect on the relationship between credit risk control practices and loan performance (β=-0.020, p<.05). Technological innovation had an enhancing moderating effect on the relationship between credit terms practices on loan performance (β=0.014, p<.05).The study concluded that loan performance of registered deposit taking SACCOS in Kenya was significantly affected by collection policy, client appraisal, credit risk control and credit terms. Technological innovation moderates the relationship between credit risk management practices and the loan performance of registered deposit taking SACCOS in Kenya. The study recommended that in order to ensure that credit risks are detected and documented, SACCOs should constantly examine and update processes relating to collection policy, customer appraisal, credit risk control, and credit terms. The research also suggests that SACCOs continuously enhance their internal control system to better establish the collection policy, client appraisal methods, credit risk management, and credit terms. The study recommends that policymakers and regulatory bodies in Kenya develop and enforce clear guidelines and regulations for credit risk management practices and technological innovation in the SACCO sector.