TRADE PROJECT
TITLE: FACTORS INFLUENCING THE PERFORMANCE OF SAVINGS AND
CREDIT CO-OPERATIVE SOCIETIES.
(A case study of capital SACCO Meru branch)
NAME OF PRESENTER: MARTHA KENDI.
COURSE: DIPLOMA IN CO-OPERATIVE MANAGEMENT.
INDEX NO:
SUPERVISOR: MADAM PAULINE MWIRIGI.
INSTITUTION: MERU NATIONAL POLYTECHNIC.
PRESENTED TO: KENYA NATIONAL EXAMINATION COUNCIL
SERIES: JULY 2020.
DECLARATION
I declare that this research is my original work and have never been presented to Kenya
National Examination Council or institution of learning.
NAME: MARTHA KENDI
INDEX NO:
SIGNATURE:
DATE:
ii
DEDICATION
This research report is dedicated to my parent Judith Iringo, friends and relatives for their
moral and financial support and also special gratitude to my supervisor Madam Pauline for
her great assistance.
ii
ACKNOWLEDGEMENT
I wish to acknowledge the Meru National Polytechnic for giving me this opportunity to
pursue this course in a conducive environment. I sincerely thank my supervisor madam
Pauline for the great advice and guidance during the period of this proposal I wish also to
thank my colleagues for their moral support.
I
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Table of Contents
DECLARATION .......................................................................................................................ii
DEDICATION ...........................................................................................................................ii
ACKNOWLEDGEMENT ....................................................................................................... iii
LIST OF TABLES .................................................................................................................... vi
LIST OF FIGURES .................................................................................................................vii
ABBREVIATIONS AND ACRONYMS .............................................................................. viii
CHAPTER ONE: INTRODUCTION ........................................................................................ 1
1.1 Introduction ...................................................................................................................... 1
1.2 Background of the Study ................................................................................................. 1
1.3 Statement of the Problem ................................................................................................. 3
1.4 Objectives of the Study .................................................................................................. 4
1.4.1 General Objective ..................................................................................................... 4
1.4.2 Specific Objectives ................................................................................................... 4
1.5 Research Questions .......................................................................................................... 4
1.6 Significance of the Study ................................................................................................. 4
1.7 Scope of the Study ........................................................................................................... 4
1.8 Limitations Of The Study ................................................................................................ 5
CHAPTER TWO: LITERATURE REVIEW ............................................................................ 6
2.1 Introduction ...................................................................................................................... 6
2.2 Theoretical Literature Review ......................................................................................... 6
2.2.1 Organization Theory ................................................................................................. 6
2.2.2 Cost Reduction Theory ............................................................................................. 7
2.2.3 Neoclassical Theory .................................................................................................. 7
2.2.4 Taylor’s Motivational Theory ................................................................................... 7
2.3 Loan Recovery Strategies ................................................................................................ 8
2.4 Financial Stability ............................................................................................................ 9
2.5 Staff Motivation ............................................................................................................. 10
2.6 Customer Care Services ................................................................................................. 11
2.7 Related Literature Review ............................................................................................. 12
2.8 Summary and Gaps to be Filled ..................................................................................... 13
2.9 Conceptual Framework .................................................................................................. 14
2.9.1 Customer Care Services .......................................................................................... 14
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2.9.2 Loan Recovery Strategies ....................................................................................... 15
2.9.3 Financial Stability ................................................................................................... 15
2.9.4 Motivation of Staff .................................................................................................. 15
CHAPTER THREE: METHODOLOGY ................................................................................ 16
3.1 Introduction .................................................................................................................... 16
3.2 Research Design............................................................................................................. 16
3.3 Target Population ........................................................................................................... 16
3.4 Data Collection Techniques ........................................................................................... 17
3.5 Data Analysis and Presentation ..................................................................................... 17
3.7 Ethical Consideration ..................................................................................................... 18
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LIST OF TABLES
Table 3.1 Targeted population………………………………………………………………15
vi
LIST OF FIGURES
Figure 1: Conceptual Framework……………………………………………………………13
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ABBREVIATIONS AND ACRONYMS
SACCO
Savings and Credit Corporative
CEO
Chief Executive Officer
LPM
Loan Portfolio Management
UN
United Nations
MDGs
Millennium Development Goals
NBFI
Non-Banking Financial Institutions
Ms Doc
Microsoft Word Document
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CHAPTER ONE
INTRODUCTION
1.1 Introduction
In this chapter the researcher will discuss the background of the study, statement of
the problem, the research objective, research questions, significance of the study, scope of the
study and limitations of the study.
1.2 Background of the Study
Savings and credit co-operative society is a democratic, unique member driven and
self help co-operative. Its owned, governed and managed by its members who have common
bond and objectives. The first co-operative movement in the world was formed in 1844 in a
village in England known as Rachdale, when Britain was undergoing the industrial revolution
(Cropp and Truman, 2001)
In India the revolution led to the decay of cottage industries and growing pressure on
land making agriculture an economic venture. The prosperity and well being of the entire
people of India hinges on the progress and prosperity of agriculture. Though agriculture is the
most important industry it was probably the most backward and primitive in the world. The
reasons which can be attributed to this state of affairs were the illiteracy and poverty of the
Indian people. The evil of poverty resulted in indebtedness to the money lenders who exploit
them. Excessive sub-division and fragmentation of holdings, absence of alternative
employment, loss of cattle through famine, diseases and flood, love of litigation ancestral
debts were all responsible for the growing indebtedness. In its present form, however, the
first co-operative towards the end of the last century when the Deccan witnessed the well
known agrarian disturbances of 1875.The peasants of Poona and ahmednagar rose against
the money lending class who were charging high rates of interest involving the peasants
indebtedness. Although the riots were soon quelled it become manifestly clear to the
government, that some substantial action was called to avoid recurrence of such act of
violence.
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Land improvement loan Act 1883 was aiming at providing long term loans. It was
realized that legislation cannot effectively control the working of socio-economic laws and
redeem the Indian farmers from his age-long indebtedness. (Justic Ranade and sir William
wedderburn, 1883) took the initiative in formulating a scheme for the establishment of a bank
in Poona to finance the agriculturist of Puranda Taluka. The government of Bobay and the
viceroy had supported the scheme, but it was turned down by the secretary of state. The first
attempt at establishing an agricultural bank in India thus ended in failure.
In Lesotho, due to the lack of interest in commercial banks and lack of success of
development institutions and banks, the Basotho had to relay mostly on source of informal
finance. For rural people the main vehicle for storing and accumulating savings has been
livestock with the monetization of the economy, lending among family and friends continued.
No collateral and no interest were asked, repayment terms are flexible and the practice was
based on reciprocity. Nowadays people participate in rotating savings and credit associations.
The Basotho probably learned about these in the mines in South Africa. The members meet
very month and contribute a certain amount of money. Each month another member receives
the total amount collected in that month and repayment is automatic through the monthly
contributions. In this way all members except the last, receive a lump-sum of money much
earlier than if they had saved individually. This encourages savings discipline and peer
pressure prevents defaults.
Absence of interest rate causes the loss of funds and inflation to be ignored. The credit
movement in Lesotho came about at a time when poor rural people had hardly any access to
loans in the formal sector and when their needs were no longer met by the informal financial
sector. It was its roots in 1960 when a team from Canada was working through Plus XII
University College (National university of Lesotho) began discussion with the government
and started training courses potential credit union leaders. By 1968, credit union had grown to
such an extent that the leadership decided they needed a national office. The Lesotho cooperative credit union league was established.
In Uganda 1990s co-operative recorded a continuous decline in the volume of
marketed agricultural produce, both at the primary and secondary level. The steady decline in
the performance of agricultural co-operatives has often been attributed to a variety of factors
which may be classified into internal and external causes of poor performance. Among the
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internal causes include the mismanagement and embezzlement of funds by cooperative
lenders and officials. There were instances when employees, especially of co-operative
unions misused assets and swindled funds for paying farmers for the delivered produce to
satisfy personal interests. As a result they withdrew membership hence with inadequate
membership oversight; management committee members connived with employed staff to
further embezzle funds. The causes that were external to the co-operative movement include
war and political instability that saw co-operatives lose assets such as stock of produce,
buildings, vehicles and personnel throughout the 1970s.
In Kenya many organizations have failed miserably because of undermining the
aspect of business performance. According to (Schindler, 2000), Burgand company which
was a reputable organization with million shillings in profits failed to observe factors
affecting performance and lost its clientele to other upcoming organizations since they had
valued the image and failed to emphasis on customer satisfaction through product
development. This applies to all aspects of business environment and is relevant to the
conduct of individuals and entire organization (Kroitner and kinicki, 2010).
1.3 Statement of the Problem
SACCOs are member owned, members controls institutions formed for the purpose of
mobilizing savings from members and offering them good return after affording loans at a
competitive interest rates and providing other services on competitive basis (Mullins, 2000)
contends that although co-operative societies have geared their effort towards offering
financial services to the vulnerable groups, youths and women, their impact on the economic
potential is still unexhausted. Many SACCOs are faced with numerous challenges while
transacting their business such as illegal and unethical behavior (zajac, 1990) CEOs are faced
with many challenges and more specifically monitoring and evaluating the impact of
performance in the SACCOs. They despise the fact that they can delegate to their juniors and
are burdened without keen interest of whether their people can make difference when fully
involving them in finding solutions and recognizing their inputs in improving the
performance of the business or adding value (Mullins, 2000). This creates a gap in
administration of the business continuity hence the need for this study.
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1.4 Objectives of the Study
1.4.1 General Objective
The general objective of the study is to establish the factors that influence performance of
savings and credit co-operative societies.
1.4.2 Specific Objectives
a) To examine the role of customer care in the performance of Capital SACCO.
b) To establish how motivation of staff influences the performance of Capital SACCO.
c) To determine the extent to which financial stability influences the performance of
Capital SACCO.
d) To determine how recovery strategies loan influences the performance of Capital
SACCO.
1.5 Research Questions
a) How does motivation of staff influence the performance of Capital SACCO?
b) To what extent does customer care affect performance of Capital SACCO?
c) To what extent does financial stability influence performance of Capital SACCO?
d) How does a loan recovery strategy affect the performance of Capital SACCO?
1.6 Significance of the Study
The research is intended to benefit the future researchers who would wish to research
more in a particular are. It can also benefit students of management in university of Africa to
learn more on the effects of business performance of SACCOs and by so they can become
trainers of trainees upon completion of their course. Managers of different SACCOs will be
able to focus on what affects performance of their organization and this will help them to
project more on growth of their SACCOs.
1.7 Scope of the Study
The researcher will carry out a research study at Capital SACCO in Meru County.
The researcher has a limited time available to carry out the research study. The cost for
completing the project might be high if carried out in the entire country.
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1.8 Limitations Of The Study
There are a number of limitations that are expected in this research study which
include time constraint since the researcher is bound to be done within a specified period of
time. There may be failure to respond to questionnaires and unwillingness of the respondents
to give into account of some information that may be considered sensitive.
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CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
This chapter covers the literature review which relates to the objective of the study. It
also includes the conceptual frame work that highlights the variables under consideration.
This chapter helps to identify and bring out the research gap.
2.2 Theoretical Literature Review
Today, the SACCOs are an integral part of government economic strategy, aimed at
creating income, generating opportunities particularly in the rural areas. The co-operative
movements has been recognized by the government as a vital institution for the mobilization
of human and material resources for various development progress particularly in the rural
areas, where the majority of people reside, earning their livelihood from agriculture. Other
non-agro-based co-operative SACCOs have also emerged and ventured into areas such as
housing ‘Jua-kali’ building and construction.(Alila and obada,1990) SACCOs are leading
sources of the rural finance and in many rural areas the local SACCOs experience a lot of
problems in rendering their services to the customers.
2.2.1 Organization Theory
According to (Robinson s., 2009) organization theory is the discipline that studies the
structure and design of the organization. It gives the descriptive and prescriptive aspect of the
organizations discipline. The theory describes the effect of the firm size and age of the firm
performance (Baumum and kaenn, 2003) also came up with organizational theory to explain
the firm size in relation to profitability. The theory states the relationship with the
organizational transactions costs, agency costs and the span of the control cost within an
organization as the determinant of the performance. According to (Dean.E, 1998) it is
observed that a firm size is related to financial performance due to industry sunk costs,
concentration, vertical integration and the overall Industry profitability. Large firms generate
superior performance due to their diversified capabilities and ability to exploit economies of
scale fully as cited by (Penrose, 1959). They have formalized procedure of conducting
business and this makes implementation of operations more effective.(Leibesten,
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1976)and(Stephard, 1986)held different views, they argued that the size of the firm is
correlated to the market power which leads market to power inferior performance.
2.2.2 Cost Reduction Theory
According to Miller and Merton, (1986), cost reduction is a dynamic exercise, an allout effort to reduce cost from whatever level they are. Nothing is assumed as standard nor
anything accepted as ideal. Every element of cost is scrutinized, every operation is screened
and every procedure is analyzed to identify the way and means reducing costs as in the cases
of SACCO operations.(Juhakam, 2003) described the theory of cost reduction as driver for
financial innovation. There are many ways of this such as reduction from improvement in
payment, processing or reduction resulting from new ways to deliver financial services
electronically to the customers, however, regulatory requirements and restrictions are also a
cost and same innovations are aimed at avoiding or reducing cost. Cost is not a one-time
exercise. It is an attitude of mind, a habit and a philosophy.
2.2.3 Neoclassical Theory
According to neoclassical theory by (Harrod and Robert, 1987) savings are not an
end in them. However they play an important role in sustaining growth and development.
Capital accumulation leads to investments through savings hence economic growth and
ultimately development. Coupe with above, the high saving economy accumulate assets
faster and thus grows faster than does a low saving economy. However, in developing
countries like Kenya the theory can be used to improve the current situation of low levels of
savings owning to poor developed stock markets, dominance of urban based commercial
banks, micro-based deposit taking institutions and semi-regulated micro finance institutions
in the financial markets as vehicles for savings. Savings and credit co-operative societies are
intended to offer an alternative to improve to the above undesirable situations in low income
countries
2.2.4 Taylor’s Motivational Theory
This theory was published by (Frederick Taylor, 1911). According to Taylor’s
research, people worked purely for money. In the early year of the car assembly industry
work on a production line was based on producing quality and was repetitive. Workers were
paid ‘piece rate’ that is paid for every item produced. This approach of paying workers by
results was good for the business. The outcome was greater production but gave little
opportunity, encouragement or time for employees to think for themselves or be creative in
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what they did. This limited people’s development and their use within the company.
Employees are more motivated if they feel content in their work. This often happens when
their employer creates a good working environment where employees feel valued, generally
through increased rewards and communication and being asked for their opinions. Employee
motivation is likely to be higher if the organization invests in its staff through remuneration,
training and development. This in turn enhances their knowledge, skills and their sense of job
satisfaction.
2.3 Loan Recovery Strategies
These are strategies that are put in place by the organizations like SACCO to ensure
those loans given to members are paid on the due date plus the accumulated interest. A loan
by SACCOs or loan portfolio constitutes being held for repayment. They are the major assets
of the SACCOs and true lending institutions. The value of the loan portfolio depends on only
the interest rate earned on loans but also in the likelihood that interest and principal will be
paid (Jasson, 2002). Lending is the principal business activity of the SACCOs; the loan
portfolio is typically the largest asset and the pre-dominance source of revenue. As such is
one of the greatest sources of risks to a financial institution safety and soundness. Whether
due to the tax credit standard, poor portfolio and the credit function is fundamental to a
SACCO safety and soundness.
Loan portfolio management (LPM) is the processes by which risk that are inherent in
the credit process are managed and controlled because review of the LPM process is to a
primary supervisory activity (Koch, 2000). Thus, when a SACCO grants credit to its
customers it incurs the risk of non-repayment credit risk management refers to the system,
procedures and controls which a SACCO puts in place to ensure the efficient collection of
customer payments and minimizes the risk of non-payment (Nacerou and Goaied, 2003)
credit risk management forms a key part of company’s overall risk of management strategy.
Weak credit risk management is a primary cause of much business failure, Many small
businesses have neither the resources nor expertise to operate a sound credit management
system (Richardson, 2000).Thus the business to analyze risks and asses them.(Fatemi, 2000)
A typical risk analysis process consists of two components; Financial analysis (quantitative
analysis) and qualitative analysis. Financial analysis consists of analysis of financial; data
available for the credit applicant, the analysis of annual financial statement that has central
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position in the context. Mostly financial analysis is carried out by the credit analysis, these
should be a general guideline stipulating that the analysis is confirmed by the person in
charge of the organizational unit supplying the module for credit officer managing the
exposure (Eldelshain, 2005).
After the analysis of credit offered then the approval of the credit is made clear
established processes of approving new creditors and extending the existing credits have been
has been observed to the very important while managing credit risk in SACCOs. Credit
unions must have in place written guidelines on credit approval processes and approval
authorities. The board of directors should always monitor loans, then approval authorities will
cover new credit approvals, renewal of existing credit changes in terms and conditions of
previously approved credit particularly credit restructuring which should which should be
fully documented and recorded. Prudent practice requires that persons empowered with the
credit approval authority should have customer relationship responsibility. Approval
authorities of individuals should be commensurate to their positions within the management
routes as well as their expertise (Mwisho, 2010).
2.4 Financial Stability
According to (Kibera,1996), management can be defined as a set of activities
directed at the efficient and effective utilization of resources in pursuit of one and more
objectives, the resources are usually people, machines, materials, time and managerial knowhow. As Sacco enter into the competitive financial market, it is now becoming increasingly
important for them to address the critical marketing elements that will give them competitive
eddy in the existing market that has its rules and standards. Being able financially to
effectively and efficiently serve the members and customers needs at the right time is one of
these important aspects.
According to (carilus ademba of sacco society regulatory authority,sacco
review,2011) the view rule contained in the societies act will give SACCO a four year grace
period to fully comply. To ensure SACCO stays within their core business, investment in the
non-interest earning assets to be restricted to ten percent of the total asset while investment in
land and the buildings are capped a five percent the same ceiling placed for the loans to
directors and staffs. This therefore improves the financial stability of the SACCO to meet
their clients needs. Saccos are a guaranteed way of ensuring an effective financial penetration
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at the grassroots. They provide structures that have a reach in enabling rural communities to
access credit conduct business and pool resources.
In terms of the UN Millennium Development Goals (MDGs) it has been realized that
the sure way to address the eight issues with poverty topping the list is to use co-operative
structures which provides a vibrant socio-economic structure for meeting relevant
community needs. According to (Mwaura,2005) lack of credit analysis, credit follow up as
well as a hostile lending are the key factors that contribute to poor performance in loan
lending by SACCOs in Kenya. According to (Muchemi,2005) non-profitable investments
should be discouraged because, despite the enormous amount of resources put in such
projects, returns are almost nil hence reducing the capital base where interest is drawn from.
2.5 Staff Motivation
According to (Kreitner and kinicki,2010), there are various kinds of rewards and
different kind of people are motivated by varying and different rewards. Thus, the challenges
to the manager are to establish what works for whom. For this is to happen, the manager has
to understand and appreciate the different needs that employees try to meet.(Armstrong,2006)
defines needs as ‘a goal directed forces that people experience’. Customer service starts with
you and ends with you, our attitude to work and customers determines the quality of service
we will provide to the customers(Ndonge,2015).
Kinicki and Fugate (2012) believe that the perspective of total rewards include
compensation such as pay increase, basic pay, promotions incentives and merit pay, benefits
such as health, welfare, retirement, paid off benefits and personal growth like career
development and training. Motivation is a technique which enhances and leads to improving
the performance of employees working at different levels (Armstrong,2006). Motivation of
staff should not only be on monetary basis but also recognition by the managers and involves
them in forwarding their inputs towards way forward for the organization is more motivating.
A manager has to be very accommodative to the colleague as a team player and motivator so
that they can journey together as a team (Classens and wong,2002). Motivation is useful in
all aspects of life and this extremely explains that motivated team is really paramount for
positive growth in the organization. Rewards are among ‘most powerful motivational tool
managers have at their disposal’ adding that for one to accept a job offer and decide how
10
much effort to exert, the rewards being offered play a big role in the final decision therefore
agrees that a reward motivates an employee (Phillips and Gully,2012).
Employee performance refers to the bahaviour that are relevant to the goals of the
organization and those that can be controlled by the individual employee (Zajac,1990).
Claessens and Wong (2002) state that organizations give rewards to their employees in a bid
to try and motivate them to perform better. People often say that motivation doesn’t last ,
well neither does bathing. That’s why it is recommended often. (Mullins ,2010) agrees that
there is enough evidence to show that money as one form of reward can positively impact on
individual , team and organizational performance. (Mullins,2010) note that more and more
employees today are focused on personal fulfillment and career progression. These factors
have led to some employees leaving well remunerated jobs in local companies in exchange
for a more balanced life with greater prospects of career growth and latitude for decision
making. Well designed and administered employee engagement surveys provide
organizations with information on the areas causing disengagement at the work place. The
greatest motivator is the conducive environment and value for one another.
2.6 Customer Care Services
According to (Bolton’s and tarasi, 2005) there are four main categories of customer
relationship management strategies; they include acquisition, retention, relationship
expansion and divestment strategies. Customer acquisition is the first step in building a
customer base. Targeting, acquiring and keeping the right customer entails consideration of
fit with current firm offering future profitability and contribution to the overall business risk.
Many firms do not employ appropriate criteria to identify profitable customers and their
market programs are broadly communicated to potential customers who may or not
profitable.
Consequently, customers acquisition maybe a costly and risky process especially
because new customers may not represent a good fit for the organization s value proposition,
a phenomenon that can often occur if acquisition is done outside previously target. Customer
product fit becomes important because campaigns aimed towards new customers that change
the positioning of a product alienate the existing customers.(Mittal and kamakura, 2001)
discuss the nature of the relationship or fit of the brand finding that customers with different
characteristics have different satisfaction there hold therefore different probabilities of
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repurchase. This leads to more generated observation that customer’s acquisition influences
the diversity of the customer portfolio thereby influencing business risk but this aspect of the
customer relationship is rarely studied in marketing (Johnson and Selvis, 2005).
An organization emphasis on customer retention also makes sense when discounting
rate are low (Gupta and Lehmann, 2005). Hence customer retention has received
considerable attention from marketers. In fact many organizations have considered the
management of CLV as equivalent to the management of customer’s retentions and have
ignored the contribution of other sources of CLV.
Research confirms that customers with higher satisfaction levels and better price
perception have longer relationships with firms (Bolton, 1998). In a context, suppliers who
have long term relationship with customers are able to achieve significant sales growth and
higher profitability through different reductions indiscrectionary expense (Kalwani and
Narayandas, 1995).
Although organizations may have customers who are unprofitable to serve, refusing to
serve them is seldom necessary. Instead organizations can offer a less attractive value
proposition to some segments for example, by raising price or offering lower product quality.
In addition, marketing campaign can be designed to attract profitable customers and be
unappealing to less desirable customers.
2.7 Related Literature Review
Fadzlanand (2008) examined the determinant of Philippines banks profitability during
the period 1990-2005, The empirical findings suggested that all the banks specific
determinant variables have a statistical significant impact on bank profitability and
performance. They also found that size, credit risk and expenses incurred in recovering loans
are negatively related to banks and Saccos profitability. According to their analysis inflation
has a negative impact on banks profitability, while the impact of economic growth, money
supply and stock market.
Capitalization has not significantly explained the variations in the profitability of the
Philippines. (Rahman and Farah,2012) did a study on non-banking financial institutions
profitability indicators; Evidence from Bangladesh and examined the indication of the
performance of firms in non-banking financial institutions (NBFI) the findings was
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profitability indicator variables have impact upon net profit. These variables was net profit as
dependent variable and current asset, financial expenses, long term liabilities, interest income
and operating revenue as independent variables, liquidity condition and operating efficiency
exert significant on performance and profitability of non-banking sectors.
According to (Demirgue and huizing, 1999) financial institutions with relatively low
non interest earning assets are less profitable. (Margarida and Mandes, 2000) observed that
the loans to assets ratio has a positive impact on interest margin ratio and profitability of the
saccos. Customer deposits resulting from competition also influences the level of income in
Saccos. (Gum and Sharmugan, 1999) noted that current account deposit was the most
profitable because there is no direct interest paid on the deposits while time and savings
deposits accounts tend to be profitable. This assists in lending ability to banks and Sacco co
operations in the country. (Muriuki,2013) studied on factors affecting performance of saccos
in Meru south district: in particular case of Tharaka Nithi Teachers SACCO. This broad
objective of the study was to investigate the effects of management variables on Saccos
performance in the TNT Sacco.
The results show that governance has effects on the financial performance of Sacco.
Further, the results also indicates that the aspect of education play a major role on influencing
governance structure. The management strategies and behaviors adapted by any Sacco
determine their strength when it comes to loan recovery strategies, financial stability, and
motivation of staff. The researcher in the case of (Muriuki, 2013) recommends that the Sacco
diversifies its products to take into account the needs of the members and the variable market
as a means for resource mobilization.
2.8 Summary and Gaps to be Filled
From the above literature, it can be concluded that when a Sacco is financially stable,
it will consistently improve its financial performance. Different aspects of financial stability
have been found and some of the factors have been used to explain financial performance
level; of firms and some positively and others are negatively related to financial performance.
SACCOs therefore need to understand the effects of each variable so that they can find ways
of enhancing those that are positively related while mitigate those that are negatively related
in order to improve their financial performance.
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Most of the studies reviewed in the literature are done in other countries whose
strategies approach and financial footing is different from Kenya and most focus on other
financial institutions other than Saccos. There is a literature gap on the relationship between
financial stability and performance of Saccos in developing countries. This study is therefore
meant to fill these gaps by focusing on the factors influencing the performance of Saccos in
Meru County.
2.9 Conceptual Framework
Conceptual framework entails formation of idea about how variables relates in the
study and showing relationship by use of graphics or diagrams (Mugenda and mugenda,
2003). The study of this conceptual framework of this study will be based on idea that
savings and credit cooperative societies performance is influenced by several factors and the
one identified will act as a guide to improve the performance of cooperative societies and at
the same time benefits the members.
Independent variables
Dependent variable
FINANCIAL STABILITY.
MOTIVATION OF STAFF.
PERFORMANCE
OF SACCOS.
CUSTOMER CARE SERVICES.
LOAN RECOVERY
STRATEGIES.
Figure 1; Conceptual framework
2.9.1 Customer Care Services
The services and the treatment that a customer receives from Saccos determine the
relationship of Saccos and the society as a whole. There are four main categories of customer
14
relationship that a Sacco needs to apply in coping with such situations. These include
acquisition, retention, relationship expansion and divestment strategies. Giving quality
services to customers create a good environment for competition and performance of a Sacco
with its competitors.
2.9.2 Loan Recovery Strategies
The strategies adopted and put in place Sacco in recovering loans rendered to
customers determines the performance of credit cooperation. Clear established process of
approving new creditors and extending existing credit has been observed to be very important
while managing credit offered to members and customers of the Sacco. They have in place
written guidelines on credit approval processes and authorities as this factor affects most of
the SACCOs advance.
2.9.3 Financial Stability
The Sacco non-performing assets should be activated and reinvested in more vibrant
and productive areas. The Saccos have to reinvest or have their roles reviewed to survive the
threats that are likely to face, many type of intermediaries because of technology and other
factors. Co-operatives needs to give priority to education, training, leadership, marketing,
technology, research and product development, product and service innovations or value
addition to stimulate co-operative organizations growth.
2.9.4 Motivation of Staff
The manager has to understand and appreciate the different needs that employees try
to meet. Perspective of total rewards include compensation such as pay increases, basic pay,
promotions, incentives and merit pays benefits such as health, retirement and welfare.
Motivation is useful in all aspects of life and this extremely explains that motivated team is
really paramount for positive growth in the organization.
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CHAPTER THREE: METHODOLOGY
3.1 Introduction
In this chapter, the researcher will discuss the research design, target population, data analysis
procedure, data analysis techniques, ethical consideration and operation of variables.
3.2 Research Design
(Kothari, 2008) descriptive research is informational in nature. It reports the way things are
with the purpose of establishing the factual picture of the object of study. (Riley, 2000) the
design also attempts to describe such things as possible behavior, attitude, values and
characteristics (Mugenda, 2003), The researcher will use descriptive research design because
it explains facts, opinions and attitudes.
3.3 Target Population(where is your samplimg design and sample)
Target population is any group of individuals with more characteristics in common,
that would be of interest to the researcher. Population is a complete set of units to be studied
(Kothari, 2004). The target population for this study is Capital Sacco in Meru County. The
target population in many characteristics must be comparable with those of inaccessible
population. In this study the staff members, board of directors and members of the capital
Sacco in meru are the sample that is defined. The researcher intends to target 50 objects of
which are board of directors, staff members and all members from different branches. This
forms a good representation sample of the entire population.
Category
Accessible population
Percentage
Board of directors
7
14
Members of staff
16
32
Members
27
54
Total
50
100
Table 3.1 Target population
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3.4 Data Collection Techniques
Data will be collected with the help of questionnaires. This consists of structured and
unstructured questions. The questionnaire is composed of both open ended and closed ended
questions, this will make it easier to compare responses of different items and also easy to
complete (Mugenda and Mugenda, 2003). The researcher will use questionnaire because they
are free from interviews biasness. Mugenda contend that 10% or more population is usually
adequate when random sampling is used in the study. This involves random selecting for
each item has an equal chance of being selected as a subject in the study through probability
sampling.(just use tables and pie chart for presenting data)
3.5 Data Analysis and Presentation
Data that will be collected will be analyzed and presentations will be checked for
reliability and accuracy which will then be edited to eliminate possible errors. Descriptive
statistics which is used to measure the central tendency, mean, and median will be used to
organize, analyze and describe data while Ms Dos excel will be used to analyze and the same
presented in figures, pie-charts, and bar graphs to give meaning of the data.
3.6 Validity and Reliability
Reliability is the measure to which a research instrument yields consistence results
after repeated trials (Mugenda and mugenda, 2003). It is expected that the method that will
be selected will provide valid and reliable data to the researcher. The data will be split into
sections separating those with different responses from others. Then the questionnaire papers
with the highest score from the group split will be taken into consideration thus eliminating
chances of error due to differing test conditions.
Validity means the method used provides a quality of a measuring indicating the
degree to which the measure is consistence that is repeated measurements will give the same
results. This means that by applying the same method of data collection repeatedly and
getting the same results there is a high probability that the information is valid, free from any
biasness and errors. With this in hand the researcher is assured that by arranging the questions
into groups will be able to provide valid and reliable data free from any error at the same time
it will make it simple to the respondents to provide what they have to the best of their
knowledge since they are not being mobilized by anybody.
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3.7 Ethical Consideration
The researcher enhances ethics by keeping the information shared by the respondents
confidentially and assuring them that it will never be revealed. The researcher also will
ensure that no personal questions will be asked that may involve the respondent’s privacy.
After a successful completion of the study, questionnaire will be kept safely for future
references should the need arise. Moral ethics will be considered by the researcher to ensure
that details of the respondent will not be infringed. (where is your questionarre and
references)
Make the corrections within the shortest time possible.
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