Analyzing Effect of Internal Financing on Financial Performance of Savings and Credit: Co-Operative Societies in Kakamega County, Kenya

Abstract

Savings and credit Cooperatives are non - profit making organizations but must make reasonable surplus to satisfy payments of dividends, interests and bonuses to members. The insufficient contribution from members in form of savings and deposits which is the major source of funds for cooperatives has resulted in severe liquidity problems for Saccos in Kenya. The purpose of this study was to investigate the relationship between alternative financing and financial performance of Savings and credit Cooperatives in Kenya. The specific objectives of the study were to: analyse the effect of internal financing on financial performance of Saccos in Kenya: This study was undertaken in Kakamega County, Kenya. This study adopted descriptive correlational research design as it seeks to describe and establish the relationship between the study variables of alternative financing and financial performance. This being a census study, all Saccos in Kakamega County registered under the Ministry of Cooperative Development and Marketing as at 31st December 2015 and are categorized as active were studied. Primary and secondary data were used in this study. Primary data was collected mainly through questionnaires which the researcher administered in person to key informants. The measures of independent variable (alternative financing) had Cronbach’s alpha coefficient of 0.7541 while those of the dependent variable (financial performance) had Cronbach’s alpha coefficient of 0.8701. The study measures were found to be highly reliable in that they all had alpha coefficient greater than the minimum accepted Cronbach’s alpha coefficient of 0.70. The study found out that internal financing significantly and positively affected financial performance with 65.7 percent of the financial performance (R squared = 0.657) being explained by internal financing. The study recommends that there is need for Saccos in Kenya to rely more on internal financing as a source of their financing because it has been found by this study that internal financing has the greatest effect on financial performance of Saccos.