Impact Of Prudential Regulatory Framework On Financial Performance Of Deposit Taking Saccos In Kenya

ABSTRACT

Regulation of the financial sector is critical aspect of consideration by the regulating

authority. This is because the financial sector tremendously influences the

performance of the entire economy. The study aims at determining the impact of a

prudential regulatory framework on the financial performance of SACCOs in Kenya.

The specific objectives in this case are; to determine the relationship between

liquidity requirements and performance of deposit taking SACCOs in Kenya, to

establish the relationship between capital requirements and performance of deposit

taking SACCOs in Kenya, to investigate the relationship between loan provisioning

requirements and performance of deposit taking SACCOs in Kenya, and to evaluate

the relationship between minimum investment requirements and performance of

deposit taking SACCOs in Kenya. The study reviewed literature under theoretical

and empirical review. The theoretical review focused on portfolio theory, agency

theory and stakeholder theory. The empirical review was done in line with the study

objectives. The empirical review focused on past studies that have done in relation to

the individual study variables. These reviews facilitated in creating an understanding

of the available literature as well as in helping identify the existing research gap. The

study adopted a descriptive survey design in addressing the research problem. The

study was based in Kenya focusing on deposit taking SACCOs in the country. The

population of the study was comprised of these deposit taking SACCOs in Kenya

which are 181 in number. Since the study population was not significantly immense,

all the elements in the population were used in the data collection exercise thus

eliminating the need for sampling. The study used secondary data that was analyzed

using quantitative data analysis techniques. The analyzed data was presented in

figures, tables, and detailed discussions made. A regression model was also developed

to test the relationship of the independent variable with the dependent variables. For

the dependent variable return on investment was used to represent financial

performance of deposit taking SACCOs in Kenya. On the other hand, prudential

regulatory framework formed the independent variables which were specified as

capital requirement, investment requirement, loan provisioning requirement, and

liquidity requirement. An empirical analysis was thus done to determine how the four

independent variables affected return on investment. Moreover, correlations and

analysis of variance were done on the study variables and on the model as whole to

determine the level of significance of each in the model. The study model was found

to be significant in explaining the relationship between the independent variable and

return on investment. The study found that the application of prudential regulatory

requirement was even among all the SACCOs in Kenya. The study further found the

implication of loan provisioning requirement was highest in influencing financial

performance of SACCOs in Kenya. The four independent variables were found to

have a positive relationship with return on investment. Liquidity were requirement

was however found to have the least impact on financial performance on Deposit

Taking SACCOs in Kenya holding the other variables constant. The study further

recommended that SACCOs can re-evaluate their approach towards issuance of loans

mainly because the level of non-performing loans was seen to be relatively higher that

the prevailing levels on interest.