THE MANAGEMENT PRACTICES AND NON-PERFORMING LOANS IN DEPOSIT TAKING SAVINGS AND CREDIT COOPERATIVES IN KENYA

Abstract

The problem of non-performing loans has been escalating in the recent years with the situation
worsening as it has been fronted as one of the leading causes of collapse of SACCOs. The research
sought to establish the effectiveness of existing loan management practices which include loan
restructuring, guarantee practices, monitoring practices and loan recovery strategies on nonperforming
loans in deposit taking savings and credit cooperatives in Kenya. The stakeholder
theory, the shareholder theory and acceleration theory forms the theories the study is anchored
on. The study collected primary data through structured questionnaires which were distributed to
166 senior credit managers from all registered deposit taking SACCOs in Kenya. Correlation and
regression analysis were used to study the relationships amongst the study variables and answer
the research questions and hypotheses. Multiple liner regression was used to model the
relationship between NPLs as the response variable and management practices variables as the
predictor variables. The study found a positive significant effect of loan restructuring, guarantee
practices, monitoring practices and loan recovery strategies on performance of NPLs in DTSs in
Kenya. In conclusion the study noted that all the predictor variables are critical determinants of
the performance of SACCOs. Since loan restructuring, guarantee practices, credit monitoring
practices and loan recovery practices are significant in the performance of non-performing loans,
SACCOs should align their loan facilities in line with these management practices so as to reduce
the level of NPLs.