The Effect of Credit Regulation on Financial Performance of Deposit-Taking Savings and Credit Cooperative Societies in Kenya.

Abstract

Credit regulation is a critical component of prudential oversight in the cooperative financial sector, aimed at safeguarding assets and ensuring the sustainability of Deposit-Taking Savings and Credit Cooperative Societies (DT-SACCOs). This study investigates the effect of credit regulation on the financial performance of DT-SACCOs in Kenya. Utilizing secondary panel data from 175 SACCOs between 2018 and 2023, the study measured credit regulation through non-performing loans (NPLs) and debt service coverage ratios, while financial performance was assessed using return on assets (ROA). Employing fixed-effects panel regression, the findings reveal a statistically significant positive relationship between effective credit regulation and financial performance. SACCOs with robust credit policies exhibited lower NPL levels and higher profitability. The study concludes that strengthening credit appraisal frameworks and enforcing regulatory compliance enhances SACCO resilience and financial viability. It recommends continuous staff training, updated credit policies, and real-time credit risk monitoring to sustain financial performance in the SACCO sector