Effect of credit risk management practices on growth of Sacco's wealth in Nakuru Town

Abstract

The purpose of this study was to investigate the effect of credit risk management practices on growth of SACCOs' wealth. The study was guided by four objectives; to determine the effects of credit risk identification practices on growth of Savings and credit co-operatives wealth, to establish the effects of credit risk analysis practices on growth of Savings and credit co-operatives wealth, to establish the effects of credit risk monitoring practices on growth of Savings and credit co-operatives wealth and to determine the combined effect of credit risk identification, credit risk analysis and credit risk monitoring practices on growth of Savings and credit co-operatives wealth. The study adopted descriptive survey design. The design chosen was because it provided a means to contextually interpret and understand credit risk management and growth of SACCOs, wealth. The target population consisted of all savings and credit cooperative societies licensed by SASRA in Nakuru as at January 2015. The study made use of primary and secondary data. Primary data on credit risk management practices was collected through structured questionnaires while secondary data was collected from financial statements. Descriptive statistics was used to describe the study variables while inferential statistics was used to relate the research variables. The overall effect of the credit risk on growth of wealth of SACCOS was tested by use of a multiple regression model. ANOVA test was used to test statistical significance of the overall effect. From the findings of the study, correlation values of; r=0. 439; p=0.000, r=356; p=0. 001 and r=.472; p=0. 000 provided evidence that credit risk identification, credit risk analysis and credit risk monitoring have significant effect on growth of wealth of the SACCOs. R-square = 0.297 and p=0.000 evidenced that credit risk management practices collectively have significant effect on growth of wealth of SACCOS. The study recommends that management of the SACCOs consider risk management as a critical determinant of their growth of wealth. Further studies should be conducted to develop a cost effective model for managing their portfolio without necessarily undertaking all the risk management activities.