Influence of Corporate Governance on Performance of Deposit Taking Saccos in Kenya

Abstract

The Kenyan Sacco Sub Sector has witnessed rapid growth, contributing to financial access reaching 13% of the population. Apart from the commercial banking sector, Deposit Taking Saccos remain the single largest formal financial credit service provider to household economies in Kenya. This is attributed to fact that the members’ savings can be treated as collateral for borrowing at the same time earn interest from the surplus made by the SACCO. Despite their contribution, Saccos are riddled with poor governance issues resulting to gross mismanagement, financial scandals, management problems which has led to low performance and collapse of some. Guidelines on governance of Saccos have been enacted as an approach to improve the performance of Saccos. The increasing importance in corporate governance in Saccos for higher firm performance was the basis of this study. The research objective was to investigate the influence of corporate governance on the performance of Deposit Taking SACCOs in Kenya. The scope of the study was the licensed Deposit Taking Saccos in Kenya which were in operational between 2014 to 2018. This study was anchored on the Resource Dependence Theory, Agency Theory and Upper Echelons Theory. The research study was guided by pragmatic paradigm. Descriptive cross-sectional survey and correlational research designs were adopted. A sample size of 108 licensed Deposit Taking Saccos in Kenya was drawn from a target population of 150. Proportionate stratified and simple random sampling technique was used to select sample size. A semi structured questionnaire was used to collect primary data from CEOs, Managers and Sacco employees. Secondary data collection sheet was used to collect secondary data from published annual financial reports. The pilot study of the questionnaire covered 11 licensed Saccos to test the validity and reliability. Out of the 108 questionnaires administered, 105 questionnaires were dully filled and returned representing a response rate of 97.2% percent. Data was analyzed using descriptive statistics, Pearson’s correlation, hypotheses testing and regression analysis. The study findings suggest that the overall correlation coefficient for influence of Corporate Governance on performance of deposit taking SACCOs in Kenya was not significant with an overall correlation coefficient of 0.225 with a P- value of 0.201>0.05, hence failing to reject the null hypothesis. The study concludes that corporate governance may not ensure the desired performance. However, the study recommends adoption of the corporate governance practices as a mechanism to protect owners’ interests. Limitations of the study included contingencies, choice of study variable and measurement scale. Areas for further studies suggested are conducting studies in other contexts to corroborate these findings and consideration of other dimensions of corporate governance in their influence on performance of Deposit Taking Saccos in Kenya.

Keywords: Corporate Governance, Performance, Deposit Taking Saccos

DOI: 10.7176/EJBM/14-8-10

Publication date: April 30^th 2022