Abstract:
Savings and Credit cooperatives commonly known as SACCOs‟ are financial
organizations formed by members with the same common bond to mobilize savings and
later grant loans to the willing members. Prior to 2008 regulatory reforms which became
operational in 2011, there were no conscious efforts made to regulate the subsector
prudently because the organizations were not thought to pose any significant risk to the
country‟s financial system. However, the organizations expanded financially and even
started banking like services which were called FOSA in attempt to increase efficiency
in services delivery but instead led to illiquidity, capital inadequacy, poor credit
management and low confidence among members. In 2008, the government and the
SACCO stakeholders formulated and legislated SACCO Societies Act 2008 and
subsidiary deposit taking SACCO regulations of 2010. The null hypotheses sought to
examine if Core Capital requirement, liquidity levels, allowance for loan loss and
members retention had any significant impact on the deposit taking SACCOs‟ financial
incomes. The relevant literature was reviewed to ascertain the knowledge gap left by
earlier scholars. The methodology of data collection was mining secondary data from
Sasra data base and the analysis tool was the statistical package for social sciences
(SPSS) which either led to acceptance or rejection of null hypothesis. The study used
comparative design and a linear regression model to establish the impact of prudential
requirements on the SACCO‟s financial Performance. The data and the perceptions of
the SACCO industry professions were able to show low performance before legislation
and higher performance after legislation. Further analysis, compared the Betas of various
independent and dependent variables before the regulatory reforms and after. On
comparison, all the betas showed that the independent variables, namely core capital,
credit management, membership growth and liquidity were not strong predictors of
financial performance but after the prudential regulations they all became strong
predictors. Thus, the study recommends that SACCOs should abide by prudential
regulations to enable them enjoy benefits of increased volume of business. To achieve
and sustain increased volume of business, the SACCOs must be prepared to employcompetent professionals to manage the large deposit taking SACCOs‟ businesses. The
benefits of both economies of scale and economies of scope would definitely trickle
down to members in form of increased efficiency in service delivery and increased
returns to members. The study further recommends research on ascertainment if other
optimal capital structure exists for SACCOs and divided policies to balance between
stability of the institution and the returns to members. The study conclusion on the basis
of findings reveals that the prudential regulations have positive impact on SACCO‟s
financial performance
