LIQUIDITY RISK AND FINANCIAL PERFORMANCE OF DEPOSIT TAKING SAVINGS AND CREDIT COOPERATIVE SOCIETIES IN KENYA
DOI:
https://doi.org/10.47604/ijfa.1465Keywords:
Liquidity risk, Financial performance, Deposit Taking Savings and Credit Cooperative societies.Abstract
Purpose: To investigate the effect of liquidity risk on financial performance of DT-SACCOs in Kenya
Materials and Methods: The study will adopt descriptive research design with data comprising of secondary, panel data which will be collected from the 175 DT-SACCOs for the period of five years between the years 2016-2020. Census sampling will be adopted where all the 175 DT-SACCOs will be considered in the analysis. Data will be collected from audited financial statements and other relevant reports submitted by the DT-SACCOs to SASRA.
Results: Financial performance of DT-SACCOs has been unstable and fluctuating over the years as measured by ROA. In 2016, ROA was 2.45 percent which rose to 2.69 percent in 2017. In 2018, it dropped to 2.40 percent before rising to 2.60 percent in 2019 and again rising to 2.65 percent in 2020. One the other hand, liquid assets to total assets ratio has been reducing. In 2016 it was 12.49 percent, 11.85 percent in 2017, 11.77 percent in 2018, and 11.62 in 2019 only to rise to 14.43 in 2020 (SASRA Report, 2020). This reflects the oscillation in liquidity thereby posing liquidity risk. As reflected by the existing empirical literature, there is an inconsistency and consensus on the research findings on whether liquidity risk affects financial performance of DT-SACCOs in Kenya.
Unique contribution to theory, Practice and Policy: Scholars and other researchers interested in the SACCO sub-sector will benefit from the findings of this study. The findings will add to the body of knowledge existing in this field and provide opportunities for further research in this area. Results from the study will be useful to SASRA and other policy-makers in the SACCO sub-sector to strengthen their regulatory framework as well as in development of a more robust liquidity monitoring policy and enhancement of liquidity management practices. The results will be beneficial to SACCO managers and the board members as it will highlight how profitability is affected by liquidity risk thereby developing more robust liquidity monitoring policy as well as enhancement of oversight on liquidity management practices. SACCO members may get an impetus to continuously hold the management accountable on the level of the profitability. This is so because the members stand to benefit most if liquidity risk is low. In addition, it may lead to members’ satisfaction and trust in the societies and hence increased share contribution.
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