The effect of lending on the financial performance of savings and credit cooperative societies in Nairobi county

As development takes place, one question that arises is the extent to which credit can be offered \nto the rural poor to facilitate their taking advantage of the developing entrepreneurial activities. \nLending is the trust which allows one party to provide resources to another party where that second \nparty does not reimburse the first party immediately (thereby generating a debt), but instead \narranges either to repay or return those resources (or other materials of equal value) at a later date. \nDescriptive design was used in the study. Descriptive research was used to obtain information \nconcerning the current status of the phenomena to describe "what exists" with respect to variables \nor conditions in a situation. This design aimed at determining the effect of lending on SACCOs' \nfinancial performance. \nThe researcher used secondary data. Secondary data was collected from the Sacco financial \nstatements and policies. Literature was reviewed using secondary data sources including other \ndissertations, journals, Sacco's financial reports, SACCO's Act, Sacco supervision annual report, \ninternet, research projects and information from the university library. Data was collected from \ntarget population which shall comprise of 34 licensed SACCOs in Nairobi County as per Sacco \nsupervision annual report 2012 by Sacco Regulatory Authority (SASRA).Descriptive analysis \ninvolving: frequencies, percentages, means, modes, medians, standard deviation, variances will \nthen be used. The study used a multiple linear regression analysis on secondary data. The following \nvariables were entered in the regression: profitability, lending volume, loan default, lending \ninterest rate, total deposit value. The study also found that loan default negatively impact on the \nfinancial performance of SACCO in Nairobi county. \nThe finding indicated that average interest rates for loans for the past five financial years from \n2009 to 2013 raised from 8.0514 to 13.011.This increase was gradual throughout the study period. \nFindings indicated that there was a negative relationship between the interest rates charged by the \nSacco’s. The upward adjustments of Sacco’s interests on term loans are in order to cushion \nthemselves of the regulatory effects. The study recommends that SASRA has great impact on the \nSacco performance in terms of outreach and sustainability. Most Sacco’s improvement on \nperformance both in membership, portfolio and loan cycle and general efficiency was attributed to \na number of factors ranging from increased membership, high efficiency, high demand and quick \nrecoveries; which was attributed to SASRA regulatory framework. Sound default Loan provision \npolicies should be established by Sacco’s. They should make adequate loan provisions to promote \nsafety of funds. This will ensure that loan assets are not overstated and recovery simplified within \nthe regulation frame work. SACCOs should adopt competition that requires effective risk \nmanagement, effective savings mobilization strategies on members’ savings mobilization and see \nthe need to develop marketing and new products/services strategies to make members to benefit \nfrom competitive interest rates on loans borrowed and to provide a wider selection of financial \nproducts/services.