EFFECT OF NON-PERFORMING LOAN DETERMINANTS ON FINANCIAL PERFORMANCE OF MWALIMU SACCOS IN MIGORI COUNTY, KENYA
Livingstone Onkangi Moya - School of Business and Economics, Kisii University, Kenya
Dr. Cornelius Kurere - School of Business and Economics, Kisii University, Kenya
Prof. Christopher Ngacho - School of Business and Economics, Kisii University, Kenya
ABSTRACT
Non performing loans are loans in which borrowers fail to meet the agreed repayment schedule for interest or principal for an extended period, commonly beyond 90 days. In the case of Savings and Credit Cooperative Organizations (SACCOs), which play an important role in mobilizing savings and providing credit to members across many economies, the rise of non performing loans creates major operational and financial difficulties. Because SACCOs rely largely on loan repayments to generate income, any increase in defaulted loans reduces cash inflows, forces higher provisioning, and limits the funds available for issuing new credit. This situation weakens profitability, restricts lending capacity, and ultimately contributes to a noticeable decline in overall financial performance. The study aims to assess the effect of non-performing loans determinants such as; high interest rates, inadequate loan size, poor appraisal, lack of loan monitoring, and improper client selection on financial performance. The purpose of the study was to assess effect of non-forming loans on overall SACCO’s financial performance. The objectives of the study were to: find out how high interest rates affects the SACCO’s performance, ascertain whether inadequate loan size had any effects on SACCO’s financial performance, to determine whether loans appraisal affects SACCO’s performance, find out whether loan monitoring techniques used has effects on SACCO’s financial performance and ascertain whether improper client selection can lead to poor SACCO’s financial performance. The study anchored on the main theory of mission drifting theory of microfinance, stewardship and financial accelerator theory. The study adopted case study design. The study was conducted in Migori County. The study targeted 115 respondents who include: two branch managers, eight loan administrative officers, eight loans values, eight loan assessors, eight loans collectors, 70 bank customer and 13 experienced retired survey respondents. The study adopted stratified sampling technique, in this technique, the size of each stratum is proportionate to the population size of the strata which will be looked at across the entire population hence, and a sample size of 89 employees were selected. Departments of the SACCO. The study adopted a descriptive design to collect data. Data was sorted, corrected, categorized, coded and then formulated by means of simple descriptive statistics; mean and standard deviations and frequency counts using statistical package of social science studies (SPSS). The study found that lenient credit terms and conditions had the highest mean followed by rising recession and falling rates of expansion followed by appropriate measures to minimize the risk of non- performing loan and aggressive lending and botched loan monitoring. The study found that standard deviations are increasing hence inadequate loan size is increasing with number of borrowers. The study recommended that loan payment services should be managed well as financial training in improving financial performance. Loan appraise should be allow asset quality measured by performing loan ratio. The study recommended that the effect of loan size should be measured to improve performance and the marketing of loan offered should be increased to maximize financial performance.