Esprit Rock

CHAPTER ONE

CHAPTER ONE: INTRODUCTIONBackground of the StudyFinancial institutions have undergone challenges over the years for various reasons. The main cause of concern is related to credit standards of borrowers and peers arising from poor loan appraisals and adherences to set credit policies (Bolton, 2011). With the adequate management of credit risk in financial institutions (FIs), survival and growth of the FIs is guaranteed. FIs play a critical role in the economy similar to that of blood arteries in the human body in that they pump financial resources for economic growth from depositories to where they are required (Shanmugam and Bourke, 1992).
In the case of Savings and Credit Cooperative Societies (SACCOs), credit risk is of much concern due to the high levels of perceived risks arising from the characteristics of customers and the conditions that they find themselves in. Besides providing loans and offering financial services like investments, SACCOs safeguard money and other valuables for their members. The main income generating activity for SACCOs is credit creation. This activity however entails huge risks to both the lender and the borrower. There is risk of a member not fulfilling their contractual obligation and this can greatly damage the seamless functioning of the lender’s business. On the other hand, a lender with high credit risk has a high bankruptcy risk, which places its members’ funds in danger. Credit risk is a major concern to SACCO authorities and Government regulators for the reason that it can easily lead to the failure of a SACCO (Jong, 2008).

The Basel committee on SACCO supervision (2001) defined credit risk as the possibility of losing the outstanding loan partially or totally, due to credit events (default risk).
Credit risk management is an approach to managing uncertainties through assessing risk and coming up with strategies to manage and mitigate it. Some of the well-known strategies used in risk management are: to transfer to another party, to avoid the risk, to reduce the adverse effects of the risk, and to accept some or all the effects of the risk (Richard, 2006).

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The overall aim of credit risk management is to maximize a SACCO’s risk- adjusted rate of return by maintaining credit risk exposure within predetermined parameters. SACCOs must manage credit risk inherent in their portfolios together with the risk involved in individual credit transactions (Mwega, 2009). It is paramount for a SACCOs to generate credit guidelines to serve as a blueprint for making investment and lending decisions. Boyd (2010) asserts the necessity of establishing a stable credit risk environment, a fluid credit granting processes, sound credit administration and measurement procedures, and monitoring and control over credit risk policy.

A lot of Kenyan SACCOs have it in their credit policies to check with the Credit Reference Bureau (CRB) prior to loan issuing to borrowers (Nyaoke, 2007). This avails the chance for the SACCO to report defaulters and at the same time, identify defaulters before they get the chance to borrow.
Savings and Cooperative Societies (SACCOs) A SACCO is an autonomous association of people who voluntarily come together with shared economic, social, cultural needs and aspirations through a jointly owned and democratically controlled enterprise. Regardless of their deposit amounts, members have equally take part the active management and administration of the SACCO whereby duties are shared (Tummala and Burchett, 1999).

The key objective of a SACCO is to promote by mutual aid the economic and social welfare of its members by granting loans to cover their economic needs, support the spirit of initiative in agricultural or industrial work and careful use of the savings produced locally (WOCCU, 2005). The first cooperative society in Kenya was started by European settlers in the Rift Valley back in 1908. The society’s aim to market cereal crops, fruits and dairy products. At the time there was no Cooperative Law to govern it up until 1931. In 1966, the Cooperative Societies Act was enacted, which then introduced control measures to counteract mismanagement and misappropriation of funds. SACCOs have grown significantly and so has their role in providing financial services to majority of Kenyans. Between 1985 and 2006, the number of registered SACCOs rose from 1285 to 4876 (Ministry of Co-operative Development and Marketing, 2007).

The Kenya Union of Savings and Credit Cooperatives (KUSCCO) ltd was registered on 27th September 1973 and officially began its operations in 1974 as the umbrella organization of all SACCOs in Kenya. KUSCCO was then admitted to WOCCU in February 2009. Since then, there has been fast growth enabled by rapid diversification in various product developments to meet the dynamic members’ financial needs. This is evident from the financial performance, which has greatly improved with an asset base of over Kshs. 200 billion and a total savings exceeding Kshs. 170 billion. There has also been an increase in dividend rate payment of 9% as well as share capital growth from KShs.253 million in 2007 to KShs.301 million in 2008 (WOCCU, 2010).

SACCOs differ from banks in the way members use the financial intermediaries. SACCO members typically have a common bond based on either employer, community, geographic area, industry or other affiliation. Examples are Mwalimu SACCO, Kenya bankers SACCO, Kenya Bus Services SACCO, among others. SACCOs have reached both public and private sectors of the society and hence have developed a much broader and deeper market penetration. This goes a long way in contributing to the government’s goals of financial inclusion as they are better positioned to continue serving the ‘unbanked’ population (WOCCU, 2009). The Kenya SACCO System registered under Cooperative Societies Act, Chapter 490, is the largest credit union network in the whole of Africa with about 5,000.00 SACCOs currently registered in Kenya (Ministry of Co-operative Development and Marketing, 2008).

SACCOs are preferred over banks due to the immense difference in interest rates. SACCOs offer between 1 percent to 1.5 percent per month, while banks offer an interest of 14 percent. SACCO interest rates are constant over the loan’s lifespan and do not charge extra to obtain these loans. Additionally, SACCOs provide lucrative investment opportunities to members through their share owning options (Mso Muga, 2017).

SACCOs have good diversity across various union members of different types, industry sectors and geographies; like the Kenya Bus Services SACCO, Kenya Planters Cooperative Society, Kenya Creameries Cooperative, etc. Diversification strategies hedge credit risk to avoid concentration of credit risk problems (Bessis, 2003). SACCOs enhance credit by buying credit protection in the form of guarantees from financial guarantors. Credit scoring is another credit risk management technique where the SACCO analyzes a borrower’s risk. A good credit scoring model must be highly discriminative whereby high scores reflect almost no risk and low scores correspond to very high risk or the opposite depending on the sign condition (Bessis, 2003). Credit approval is where the lending limit is a multiple of savings. This technique aids in building a savings-led institution and allows for the institution to learn about the discipline and economic capacity of memebers by observing frequency of deposits. Credit unions must have in place written guidelines on credit approval process, approval authorities of individuals or committees as well as decision basis (Mwisho, 2001).

Waumini SACCOWaumini SACCO is a Savings and Credit Cooperative Society that was registered in 1980 under the Cooperative Societies Act of the laws of Kenya. The SACCO mobilizes saving and deposits, and economically empowers its members by extending credit. Waumini SACCO has grown in membership and provides inclusive service offerings to individuals, corporate institutions and organized Catholic Church groups. It is currently a leading progressive SACCO with membership of over 21,000 from over 800 catholic institutions across 26 Catholic Dioceses in Kenya, Catholic Church faithful and past employees of Catholic institutions “Mzalendo” (Waumini, 2017).

Waumini’s objectives are: to accept deposits and advance loans to members, to promote economic and social development by availing affordable credit to customers and to continuously educate members on co-operative and economic development. It bases its operations on its core values (competence, teamwork, servant leadership, justice and fairness, transparency and accountability, innovation and creativity, customer care, honesty and integrity). Waumini Sacco offers loans of up to three times the savings of its members. They offer personal loans, emergency loans, development loans, jaza loans, bridging facility and purchase loans. The loans offered attract fixed interests, which are charged on reducing balance. Loan repayment is usually from one up to sixty months. The loans are charged an interest rate of 7% upfront (Waumini, 2017).

Within the past two years Waumini Sacco has realized a growth of 17.6% in its asset base which continues to solidify the stability of the Sacco. The membership has grown from 19.7% compared to 11% in 2016, a total of 4,256 new members were recruited compared to the annual target of 3000. Loan disbursement has grown by 12%, though it is a drop compared to 2016, that had a growth of 16% (Waumini, 2017)
Waumini’s key achievements include: establishing a mobile lending platform (Waumini Cash) that enables members to apply for loans at their convenience through cell phones; launching two branches and a liaison office in 2016; developing digital and social media networks through its interactive website; achieving capital adequacy requirements set out by SASRA; and increasing the requirements of Catholic and Corporate institutions.

The SACCO however faces some challenges such as defaulting units arising from financial constraints. This affects its performance as it is forced to make provisions for non-performing loans. Another challenge is that most Catholic institutions are funded by local and international donors who have substantially cut their financial support to the said institutions. What this does is that it increases the vulnerability of these institutions to financial difficulties to the point of closure. This has resulted to member reduction, deposit withdrawals and some cases of unit default (Waumini, 2017).

Statement of the ProblemSACCOs are pivotal in serving the financial requirements of economic players such as households and SMEs. They encourage individuals to save, thereby accumulating capital for the economic development of Kenya. Lending has been and still is the backbone of financial institutions and this is truer to emerging economies of developing countries such as Kenya where capital markets are not yet well developed (Richard, 2006).
In today’s rapidly changing business environment, there have been cases of worsening economic conditions, monetary policy changes, financial sector liberation and more importantly, stiff competition (Nyaoke,2007). All these pose different risks to financial institutions including credit risk. Credit risk management practices will therefore help SACCOs to reduce their exposure to credit uncertainties and enhance their ability to compete with other well-established financial institutions like banks (Iqbal and Mirakhor). According to Waumini’s 2017 annual report, the SACCO has faced several challenges such as default by some units due to financial constraints, withdrawal of international donors who are their main source of funding and poor employee renumeration compared to existing market rate and economic fluctuation which affects members borrowing power. All these challenges increase the risk default. Therefore, there exists a need to address the issue of credit risk default to reduce the default rate. Reduction of the SACCO’s exposure to credit risk will enhance its ability to achieve its predetermined objectives and ascertain its success, thus necessitating the need to have in place comprehensive credit risk management practices and reporting process to identify, measure, monitor, manage, report and control credit risks. Adequate credit risk evaluation and management practices can be identified, and the risk controlled so that management can take certain steps to improve the SACCO’s potential for success (Saunders and Cornett, 2002). Considering the importance of lending in financial institutions, the future of SACCOs undoubtedly rests on Credit Risk Management (Bessis, 2012).
In Kenya, different scholars have reviewed various aspects of credit risk management. (Muasya, 2009) studied the impact of non-performing loans on the financial performance of banks in Kenya while (Omina, 2009) studied the relationship between credit risk management and non-performing loans in commercial banks. Wambugu (2008) studied credit risk practices by Micro Finance Institutions (MFIs) in Kenya and the findings were that most MFIs had clearly defined credit policies that were periodically reviewed. (Ngare, 2008) researched on credit risk management practices by Commercial Banks in Kenya.

While the above research outcomes provide insight on credit risk management techniques by commercial banks and MFIs, there is little known study to the researcher that has been done on credit risk management in SACCOs and how they impact on their financial performance. This is the knowledge gap the study sought to address by answering the research question: what is the impact of Credit Risk Management practices on financial performance of SACCOs in Kenya?
Research ObjectivesGeneral ObjectivesTo find out the effects of credit risk management practices on financial performance of SACCOs in Kenya.

Specific ObjectivesTo determine the effect of credit scoring on financial performance on SACCOs.

To find out the effect of credit administration on financial performance of SACCOs.

To establish the effect of credit policies on financial performance among SACCOs.

To assess the effect of credit risk monitoring on financial performance among SACCOs.

Research QuestionsWhat is the effect of credit scoring on financial performance of SACCOs?
What is the effect of credit administration on financial performance SACCOs?
What is the effect of credit policies on financial performance among SACCOs?
What is the effect of credit risk monitoring on financial performance among SACCOs?
Significance of the studyThe study will help SACCO authorities and management to appreciate the need for credit risk management and to create or review credit risk management practices as well as their impact on financial performance. The study will also assist government agencies in developing regulatory and legislative frameworks that will guide SACCOs in developing and adopting sound credit risk management practices in Kenya. The study will add to the existing knowledge of credit risk management practices as a whole. Finally, this study will provide a basis for future research.

Conceptual FrameworkCredit Scoring
Credit Administration
Credit Risk Monitoring
Credit Policies
Financial Performance
Profitability
Liquidity ratio
Independent Variables
Dependent Variable

Figure SEQ Figure * ARABIC 1: Conceptual Framework (Source: Author)
The conceptual framework shows the relationship between the independent variables (Credit Risk Management strategies) and the dependent variable (financial performance of SACCOs) that were investigated in this study. The independent variables entailed Credit Scoring, Credit Administration, Credit Policies and Credit Risk Monitoring. Financial performance (the dependent variable) can be analyzed using the recommended measures for financial analysis; which are grouped into five broad categories: liquidity, solvency, profitability, repayment capacity and financial efficiency. Profitability measures the extent to which a business generates profit. Four useful measures of profitability are the rate of return on assets (ROA), the rate of return on equity (ROE), operating profit margin and net income. The ROA measures the return to all assets and is often used as an overall index of profitability, and the higher the value, the more profitable the business. Since ROA reflects the efficiency of how the assets (loans) under the control of management are used to earn income, it is an intuitively a robust measure of performance; therefore, this study measured financial performance using ROA.

CHAPTER TWO: LITERATURE REVIEWIntroductionThis chapter discusses the strategic approaches to credit risk, empirical review of credit monitoring and recovery strategies and lastly, the chapter summary.

Theoretical FrameworkThis research study was guided by three theories namely; portfolio theory to credit risk management credit, theory of internal controls and risk theory.

2.2.0 Portfolio Theory to Credit Risk Management
From the 1980’s, credit unions have been able to use the Modern Portfolio to market risks. Several are currently applying the value at risk models to handle their interest rate and exposures to risks in the market. According to Korir (2012), the negative impact of credit concentration on financial performance has been noted by credit institutions. Hence, a good number of credit institutions are now using approaches that are more quantitative in nature as an approach to credit risk management. It is noted that steps forward are being made towards formulating new ways of measuring credit risk based on an institution’s entire portfolio. The use of credit derivatives is also being employed for efficient transfer of risk while maintaining customer relationship.
Theory of Internal Controls
Effective internal controls greatly affect the smooth operations of an organization and how that organization achieves its goals. Controls contribute towards meeting of long-term objectives and also towards maintaining dependable financial reporting. Internal controls enable organizations to comply with rules and regulations, as well as policies laid down internally. This in turn reduces the risk of unexpected losses and damages to company reputation (Barnabas, 2011). This theory brings forth the indication that there should be transparency, guiding policies and controls to curb misuse of funds that will lead to poor financial status of the SACCO.

Credit Risk Theory
Credit Scoring
Credit Administration
Credit Risk Monitoring
Credit Policies
Financial Performance
Profitability
Independent Variables
Dependent Variable
The Credit Risk Theory, introduced by Melton in 1974, notes that a default event derives from an institution’s asset evolution, modeled by a process with constant parameters. These models are typically structural and based on the issuer specific variables. Losses in this category due to default are because of factors outside the lender’s control but that are specific to that industry (Longstaff and Schwartz.1995).
Credit Scoring
Credit scoring analyzes a borrower’s risk. Credit scores are assigned to each member to indicate risk level. A good credit scoring model must be highly discriminative whereby high scores reflect almost no risk and low scores reflect very high risk or the opposite depending on the sign condition. The more discriminative the scoring system is, the better the ranking (Bessis, 2003). Previously, credit scoring focused on measuring the risk that a customer would not fulfill his/her contractual obligation. Recently, credit scoring evolved to loss and exposure risk as well. Nowadays, scoring techniques are used throughout the whole life cycle of credit as a decision support tool for large member bases. In the past, the credit approval decision was made using a purely judgmental approach by just inspecting the application form details of the applicant and commonly focused on the values of the 5 Cs (character, capital, collateral, capacity and conditions of a customer) (Pykhtin, 2005). Character measures the borrower’s personal character and integrity and includes virtues like reputation, honesty and their willingness to comply with credit terms and conditions. Capital measures the difference between the borrower’s assets which may include car, house and liabilities like renting expenses and whether they exist; Collateral evaluation of the assets provided security in case payment problems occur, for example house hold assets, house, car. Capacity measures the borrower’s ability to pay based on for instance, job status, source of income. Conditions where the members’ borrowing circumstances were evaluated, for example, market conditions, competitive pressure, and seasonal character (Pykhtin, 2005).
Credit Approval and Administration
Clearly established processes of credit approval and oversight and extending existing credits has been observed to be very important in the management of credit risk in SACCOs. Credit institutions must have in place written guidelines on credit approval process, approval authorities of individuals or committees as well as decision basis and the board should always monitor loans. Approval authorities cover new credit approvals, renewals of existing credits and changes in terms and conditions of previously approved credits particularly credit restructuring, which should be documented and recorded (Mwisho, 2001).
The approval process should be based on a system of checks and balances. Some approval powers should be reserved for the credit committee, considering the size and complexity of the credit transaction. The institution, depending on its size, should have a group of experts to critically assess, approve and manage credit risk. Accountability should also be established and maintained for the decision-making process, together with periodic audits of decisions taken and relevant individuals involved (Caoutte, Altman and Narayanan, 1998). All credit approvals should be at an arm’s length, based on established criteria. Credits to related parties should be closely analyzed and monitored so that no senior individual in the institution is able to override the established credit granting process (Derban, Binner and Mullineux, 2005).
Credit Policies
Mwisho, (2001) indicated that credit institutions should have written loan policies approved by the board in the financial institutions. The board should review the policies annually and revise where needed. The loan policy should include the policy objective, eligibility requirements, permissible loan purposes, acceptable types of collateral, loan portfolio diversification requirements, loan types, interest rates, terms, frequency of payments, maximum loan sizes per product type, maximum loan amounts as a percentage of collateral values, member loan concentrations, restrictions on loans to employees and officials, loan approval requirements, monetary loan limits, loan documentation requirements and cosigner requirements. Credit institutions should also develop lending procedures which are developed by the operational management teams responsible for ensuring they are indicative of current lending practices.
Credit Monitoring
An effective credit monitoring system will include measures to: ensure that the institution understands the current financial condition of the borrower; ensure that all credit follows the existing policy; ensure that projected cash flows on major credits meet debt servicing requirements; and ensure that collateral provides adequate relative coverage (Greuning & Bratanovic 2003). The monitoring of borrowers is very important as current and potential exposure changes with time therefore, credit monitoring involves frequent contact with borrowers, creating an environment that the SACCO can be viewed as a solver of problems and trusted advisor to the borrower (Tracy & Carrey 1998; Basel 1999). Therefore, SACCOs need to develop and implement in-depth procedures and information systems that keep track of the condition of individual credits and obligors across SACCOs (Basel, 1999).
Financial Performance
Profitability can be broken down into two components; profit margin and turnover. High turnover is an indication of efficiency in asset utilization. (Barton & Gordon, 1998.) A company’s financial performance is positively influenced by its total assets, where the greater the amount of assets, the less risk involved. Studies have sought to investigate the connection between financial performance and turnover, but they have mostly been inconclusive (Chijoriga, 2007). According to SASRA (2015), Waumini SACCO had total assets worth Kshs. 2, 773, 956, 585; total deposits worth Kshs. 2, 158, 733, 453; net loans worth Kshs. 2, 470, 796, 743; and total income of Kshs. 323, 231, 873. In 2016, Waumini’s total assets were Kshs. 3, 221, 340, 000; total deposits were Kshs. 2, 500, 410, 000; net loans were Kshs. 2, 866, 840, 000; and turnover was Kshs. 386, 670, 000. Going by these figures, the ROA was approximately 11.65% in 2015 and approximately 12.003% in 2016.

Summary of Literature Review
The study reviewed three theoretical foundations; portfolio theory to credit risk management., the theory of internal controls and credit risk theory. The empirical review looked at relevant studies relating to the topic and some determinants of financial performance.
Empirical ReviewGlobal StudiesAn increased investment by financial institutions in risk management led to a reduction in how volatile earnings and losses were during the recession of 2001 (Drzik, 2005). A research by Tucker and Miles (2004) looked at three series of data for the period between March 1999 to March 2001 and that micro finance institution that were self-sufficient performed better and were more profitable, based on ROE and ROA, as compared to their counterparts in the third world countries and others that had not become self-sufficient. Hakim and Neamie (2001) conducted a study in Lebanon and Egypt where they looked at the performance of banks based on the use of credit risk practices. The results reveal that variables of credits and profitability positively correlate.

International Studies (Africa)Nawaz and Munir (2012) conducted a study on credit risk and the financial performance of banks in Nigeria. The data included a cross section on loans and advances, non-performing loans, total deposits, profit after tax and total assets of the sampled banks and correlation models were used to analyze the data. The study concluded that credit risk management had an important impact on the profitability of banks in Nigeria. From this finding, they recommended that management carefully set up policies on credit that will enhance profitability and understand how these policies affect banks operations.

Mutara Development SACCO has a formalized their credit policy manual that clearly sets out the loan application, appraisal and approval procedures as well as requirements for the various loan products offered by the institution. The institution has further benefited from an improved portfolio management methodology through its partnership with the Microfinance Support Centre Limited, to which it reports bi-monthly (Planet Rating East Africa, SACCO growth Report, 2007).
Local Studies (Kenya)Kalui & Kiawa (2015) researched the effects of credit risk management procedures on financial performance among microfinance institutions (MFIs) in Kenya. The objectives were to determine to what extent risk identification, risks monitoring procedures, and risk analysis and assessment procedures are applied in credit risk management and their overall effect on the financial performance. The findings concluded that these procedures were critical as they ensured the task of managing risk was established in the entire institution.
Kiplimo & Kalio (2012) investigated how loan performance of MFIs in Baringo County was influenced by credit risk management practices. Their findings were that there exists a positive relationship between client appraisals and performances of loans. The study therefore exerted that loan performances of MFIs in Baringo County were influenced to a greater extent by credit risk management practices.
Gaitho (2010) conducted a survey on credit risk management practices by SACCOs in Nairobi. The objective of the study was to identify credit risk management practices adopted by SACCOs in Nairobi. The findings show that most SACCOs used credit risk management practices to objectively appraise risks in credit distribution. Majority of the respondents agreed that credit risk management practices have impacted positively to their organizations by ensuring efficiency in carrying out its obligations and in meeting its objectives.
2.5 Knowledge Gap
Most researchers have done studies on Saccos and MFI’S in Kenya, but none have researched on Waumini which the scope of study in this particular research is.

CHAPTER THREE: RESEARCH METHODOLOGYIntroduction
This chapter looks at the methodology used in the context of this study to find answers to the research questions. The research methodology comprises of the research design, target population, sampling procedure, data collection methods, and data processing and data analysis techniques. The following sections provide a detailed description of the methodology utilized in the study.

Research Design
This study adopted a descriptive survey design that aimed to explore the Credit Monitoring and Recovery strategies adopted by SACCOs in Kenya. A descriptive research design is used for this research study as this will provide answers to the questions related to the research problem (Given, 2007). Descriptive designs result in a description of the data, either in words, pictures, charts, or tables, and indicate whether the data analysis shows statistical relationships or is merely descriptive. Census survey based on the SACCOs in Kenya was used to produce results that were broad, credible and conclusive. The research was quantitative in nature and relies on primary data obtained from Waumini SACCO.

Population Population is a compute set of individuals, events or objects having a unique characteristic that can be observed (Mugenda ; Mugenda, 2003). In this study the target population is employees of Waumini Sacco.

Sample design
A sample design is a method of choosing a section of the entire population is called sampling (Chandran, 2004). For this study the researcher made use of the probability random sampling method.
Sample size and sampling technique
According to Mugenda and Mugenda (2003) a sample size of 10% to 30% is considered desirable. The study sample size (n) is 20% percent of the entire population. The descriptive method used will assist the researcher to make a conclusion from the sample. Random sampling technique has been used in this study.

Data Collection
The researcher used a structured questionnaire as primary data collection instrument. The questionnaire was considered appropriate because it was more convenient to administer and to collect data to enable the achievement of the objective of the study. The primary data collected in the study included data on credit monitoring and recovery strategies adopted by SACCOs.

The questionnaire contained closed-ended questions and open-ended questions structured into various sections to avoid rigidity and allow for quantification of data. The questionnaire was targeted to the heads of departments and staff involved in credit monitoring and recovery in the SACCO.

Data Analysis
Data analysis is a systematic way of looking for patterns in the collected data and coming up with ideas which account for the account of those patterns (Newton and Jeonghun, 2010). The research questions of the research study are to be answered through data analysis. Data analysis also assists in determining the relationships and trends among variables. The content analysis technique is to be used to analyze the data collected and thereafter the findings that emerged from the analysis are to be used in the report compilation. The researcher will use qualitative and quantitative techniques in analyzing the data. After receiving questionnaires from the respondents, the responses will be edited, classified and tabulated to analyze quantitative data. Tables and charts will be used for presentation for easy understanding. This will be coupled with factoring analysis on qualitative issues to generalize the results. Factor analysis measures the factors that are deemed to contribute most to a particular issue under investigation, such as credit risk management practices, based on statistics drawn from questionnaire responses.

CHAPTER FOUR: DATA ANALYSIS, RESULTS AND INTERPRETATIONS
Introduction
In this chapter, results and findings gathered from responses will be presented. First, descriptive statistics will be applied using statistical measures in order to understand the nature of the results.
Response Rate
Fifty (50) questionnaires were distributed to offices of Waumini SACCO, out of which thirty (30) were dully completed and picked by the researcher from the respondents. The rate of response was then calculated at 60%, which is in concords with Mugenda and Mugenda (2003). They hold a response rate of 50% as being sufficient for generalization while for analyzing and reports, 60% is good. The researcher informed ahead of time the potential participants after which the questionnaires were dropped off and picked up days later, giving the respondents sufficient time to answer the questionnaires accurately.
Credit Monitoring
The respondents were required to make indications by ticking against statement related to credit monitoring at the SACCO. It was noted that most of the respondents agreed strongly that the credit risk monitoring practices used by these entities addressed all significant risk.

For a credit risk management system to be effective, it must be monitored on an ongoing basis and the structure must be reviewed constantly. The management should generate reports, ensuring that risks are identified and assessed (Al-Tamimi ; Al- Mazrooei, 2007).

Credit Monitoring Strategies
Do the SACCO monitor loans on an ongoing basis to enforce payment?
Does the SACCO generate daily, weekly or monthly reports?
Does the SACCO monitor account operations of its members?
The findings in table 3 shows that all the respondents (100%, n=30) indicated that the SACCO monitors loans to enforce payments. The findings in table 4 show that all the respondents (100%, n=30) indicated that the SACCO does generate daily, weekly or monthly credit reports to monitor loans and the findings in table 5 show that the SACCO strictly monitors the account operation of its members to prepare for defaulters.

Does the SACCO carry out rigorous risk assessments?
The findings in table 6 indicate that all the respondents (100%, n=30) indicated that the SACCO subjects credit proposals to rigorous risk assessment.

Credit Recovery Strategies
Measurement of Risk
The findings in table 7 indicate that 60% of the respondents indicated that they measure risk debts based on the length of time of the loan recovery. 20% indicated that they measure risk when the credit facility remains unpaid for three months. 10% indicated that they use portfolio at risk as a measurement of risk and 10% indicated that they use frequency of payments.

Strategies put in place for Debt Recovery
The findings in table 8 show that 83.33% of the respondents are aware that credit is given out with security. 60% of respondents note that there are relationship officers that maintain good relations with clients. 33.33% of respondents say that making customer visits is one way of recovering the loans. The SACCO also uses dedicated departments in place to take care of the debt recovery as indicated by 66.67% of the respondents. All the respondents agree on alerting customers on payment beforehand.

Debt Recovery Strategy Success
The findings in table 9 indicate that all of the respondents indicated that they list the defaulters at the CRB as a strategy used to influence the success of their debt recovery. The findings also indicate that all of the respondents act on time and use demand letters. The findings indicate that 100% do monitoring of the loan portfolio and all the respondents agree on building of good customer relations as a way of ensuring the success of loan recover. All of the respondents indicated that they speed up the security realization process as a strategy of ensuring success in debt recovery.

Evaluation of Credit Application
The findings in table 10 show that 70% of the respondents indicated that they use account turnover and cash flow of the customers as a way of evaluating credit application. All the respondents indicated that they analyze the SACCO’s ability to service loans as a way of evaluating credit applications. The findings also indicate that 83.33% of the respondents evaluate credit application through request for collaterals.

Credit Policies
The study’s findings indicate that a credit policy provides a framework for the entire management practices. It was also noted that policies have enforced the SACCO’s operational consistence. The participants agreed that credit policy has maximized the value of the Sacco. It was concluded that using policies was time saving since it prevented issues from being discussed again in future.
Discussion of Research FindingsThe study aimed to establish the effect of credit risk management practices (creditmonitoring, credit scoring, credit administration and credit policies) on the financial performance of Waumini SACCO. The study found that respondents agreed that the SACCO uses credit scores to evaluate the potential risk posed by lending money. The findings also reveal that, in order to maintain a high level of financial performance,SACCOs should appropriately apply risk management practices. It was noted that most of the respondents agreed strongly that the credit risk monitoring practices used by the SACCO addressed all significant risk. Regarding the cultivating of good loan customers and using credit-risk analysis to ensure that borrowers were credit worthy, all the respondents agreed. On the relationship between financial performance and other variables, the study’s findings revealed that an increase in credit scoring shall result in an increment in Financial performance. Credit administration will also result in an increase in financial performance. When credit policies rise, financial performance rises as well. Credit risk monitoring activity bump leads to an increase in the dependent variable.

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
Introduction
The chapter summarizes the research findings as presented in the previous chapter. The conclusion drawn from the findings is presented in this chapter. This chapter expresses the researcher’s recommendations and areas for further research.

Summary of Findings
The general objective of this study was to determine the effect of credit risk management on the financial performance among SACCOs.
The study found that most respondents agreed Waumini SACCO does an analysis of previous credit records of a borrower for the purpose of determining their credit worthiness. Most of the respondents agreed that credit scores help to identify areas of classification. To add to that, the respondents strongly agreed that use of credit scoring has enabled the SACCO to mitigate risks.
The study sought to establish the effect of credit administration on the financial performance of the SACCO. The findings show that all respondents strongly agreed that the SACCO had transparent operations and demonstrated integrity in conducting their business. The respondents also agreed that the SACCO’s administration system aids in the management and in the observation of the entire loan portfolio. The study also found that loan decisions are made in accordance with the SACCO’s loan policy. The respondents identify with procedural guides that relate to credit score monitoring. The study further sought to establish the effects of credit policies on financial performance of the SACCOs. Further, credit policies ensure the SACCO’s operational consistency.

Finally, the study sought to investigate the effects of credit risk monitoring on the financial performance of the SACCO. The respondents strongly agreed that significant risks were addressed by the risk monitoring practices put in place by the SACCO.
Conclusion
The Credit Risk Management policy goes a long way in providing guidelines that aid in the management of the various risks a SACCO encounters in their core activities. Formulating a sound credit policy is largely done by SACCO members while the regulatory bodies have moderate involvement. From the findings, the study concludes that SACCOs must have credit risk management strategies in order to run effectively and prevent it from failing in its obligations, meet both its short and long-term objectives, minimize loan default rate, and ensure that the organization performs better, competes better, thus increasing the return on assets and overall profitability.
Recommendation
The researcher recommends that SACCOs should benchmark the existing credit policies used in other financial institutions like commercial banks and micro finance institutions. These SACCOs can use existing credit policy frameworks as their blueprint; or modify them to suit the conditions surrounding them.
SACCOs should also enforce internal controls and strict policies and ensure that these policies are followed to the latter.

From past experiences, SACCOs have suffered credit losses through lax lending standards and unsecured loans. The recommendation therefore is that SACCOs must create, keep track of, and constantly update personality profile assessments of future and current borrowers. This will enable the SACCO to minimize default risk by allowing through borrower insight obtained from properly structured processes.

Limitations of the study
The findings from this study are applicable only to SACCOs in Kenya, however, this is not a one size fits all suggestion as different SACCOs are surrounded by different factors that control their operations. The suggestions may be perfect for one institution, but they might be subpar for another. Also, a fact worth noting is that these financial situations in the overall economy are likely to be influenced by change, the relevance of the information in these findings are limited to the duration of this research.
Suggestions for Further Research
This study should be compared with findings from other SACCOs and financial institutions to establish the similarities and differences that may be evident. This will assist the SACCOs to benchmark with other organizations.

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