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.