The Effects of Credit Risk Management Practices on Growth of SACCO's Wealth in Nakuru Town

Abstract

Credit risk simply as the potential that a bank borrower or counterpart will fail to meet its obligations in accordance with agrees terms. Credit risk or default risk involves inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions.  Increasing profitability is a priority for all managers in financial institutions. For Sacco managers, credit risk management is equally very important. On the one hand Sacco managers need to reduce the risk of loan default because the institutions financial viability is weakened by the loss of principal and interest, yet on the other hand SACCO’s operate under objectives of maximizing benefits to members which include the social role of providing loans to help members achieve their standard of living goals . The main objective of the study will be to investigate the effect of credit risk management practices on growth of SACCOs' wealth. A descriptive survey was used and the target population was all savings and credit cooperative societies licensed by Sasra in Nakuru as at January 2015.     Primary data was collected using questionnaires and analyzed by correlation and regression. The study concluded that collectively, credit risk identification, credit risk analysis and credit risk monitoring do not have significant effect on growth of SACCOs. It was evident that credit risk management is not key determinant of wealth of SACCOs and therefore SACCOs can not invest in such practices in attempt to achieve improved growth in wealth.

Keywords: Credit Risk ,Management Practices,  Saccos' Wealth