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.

Background of the study 
According to Donald et al. (2006), credit risk simply as the potential that a bank borrower or counterpart will fail to meet its obligations in accordance with agrees terms. Credit risk or default risk involves inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions. The goal of credit risk management is to maximize a Savings and Credit Co- operative Societies (SACCO)’s risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. SACCOs need to manage the credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions. Sacco should also consider the relationships between credit risk and other risks (Olando et al., 2012). The effective management of credit risk is a critical component of a comprehensive approach to risk management and essential to the long-term success of any SACCOs (Nelson & Schwedt, 2006) 

According to Munyiri (2006), SACCOs, which are started locally, are more attractive to customers thus deeply entrenching themselves in the financial sectors of many countries. In fact, they have solid bases of small saving accounts constituting a stable and relatively low-cost source of funding and low administrative costs (Branch, 2005). SACCOs are able to advance loans at interest rates lower than those charged by other financial providers. In addition, SACCOs have the ability and opportunity to reach clients in areas that are unattractive to banks such as rural or poor areas. The core objective of SACCOs is to ensure members empowerment through mobilization of savings and disbursement of credit (Ofei, 2001). SACCOs in Kenya in their struggle to achieve this objective have been able to mobilize over Kshs.200 billion in savings, the largest in Africa with over 3.5 million members and a $2 billion loan portfolio (Co-operative Bank of Kenya, 2010). 

Credit Risk Management Practices 
The provision of credit facilities is the core function of every SACCOs (Olando et al., 2012). Credit management function facilitates efficient management and administration of the SACCO loan portfolio in order to ensure equitable distribution of funds and to encourage liquidity planning. In order to achieve prudence and accepted best practice, credit management should always be guided by clearly spelt out policies and procedures, strategic plan, by-laws , the co-operative act, the SACCO regulatory act and rules and regulations (Olando et al., 2013). Basically SACCOs have three operational aspects namely; the savings, the credit and channeling external funds to members. 

Credit risk has become a necessary consequence of a vibrant and ever changing economy, because the economy is supported mostly by the interference of financial institutions (Jennifer et al. 2008). Due to such effect commitment to prudent lending has become a major concern and discussion issue in a global financial institutions context today. In this regard Ahmed (2002) noted that without the provision of credit from country’s financial institution especially through SACCOs, no development of modern industrial community and fostering of investment that is achieving the target growth of economy by the state would have been impossible (Kalui & Omwanza, 2015). As a result most of the financial institution and micro finance industries are looking into managing their credit risks in different business cycle and environment that can help to alleviate crisis and major losses that could damage long term functionality of the institutions. Therefore effective credit risk management is very essential to achieve these economic objectives and to foster growth of SACCOs. 

Growth in Wealth of SACCOs 
Savings mobilization is the main source of funds for SACCOs. Mobilization should therefore be backed by adequate institutional capital which ensures permanency, provide cushion to absorb losses and impairment of members’ savings (Evans, 2001). The institutional capital which comprises the core capital and less share capital is mainly accumulated from appropriation of the surpluses. Therefore, SACCOs should strive to maximize on the earnings to build the institutional capital (Branch & Cifunentes, 2001; Ombado, 2010). This institutional capital ensures the permanence and growth of the SACCOs even in turbulent economic times (Evans, 2001). In fact, it helps the SACCOs to grow and, remain economically and financially viable (Gijselinckx & Devetere, 2007) and this growth is enhanced through effective credit risk management practices. 

Studies by Ngugi & Kabubo (1998) and Bisasi & Pagano (2001) noted that financial institutions including SACCOs mobilize funds majorly to accumulate wealth. The wealth majorly goes to SACCO members and to the SACCO. Olando (2005) discussed financial growth of an institution in terms of returns to members, total assets and institutional capital and. He further pointed out that institutional capital goes into development of capacity of the SACCO which majorly involves acquisition of assets to assist in SACCO operations. In this study, the institutional capital will be used to measure growth of wealth in SACCs. 

SACCOs in Kenya 
In Kenya, SACCOS remain the most important players in provision of financial services and have deeper and extensive outreach than any other type of financial institution (ICA, 2002). They provide savings, credit and insurance services to a large portion of the population. Financial sector reforms were adopted in 1989 through the Structural adjustment programs supported by World Bank credit, which included liberalization of interest rate attained in July 1991, and exchange rate-attained in October 1993. From the year 2010 new developments and intense competition in lending industry in Kenya’s economy has been witnessed since the introduction of the economic liberalization which has posed serious challenges to the SACCO’s. The emergence of formal and informal segments in the financial sector fragmentation implies that different segments approached problems such as high transactions costs, risk management, mobilization of funds, grants and capitalization (Steel, 1998). 

The Cooperative movement in Kenya dates back to 1931 when the first ordinance to regularize the operations of the cooperatives in the country was enacted. The following decade witnessed increased intervention in the sector with the eventual enactment of the Co-operative Ordinance Act of 1945, the predecessor of the current Co-operative Societies Act, Cap. 490 of the laws of Kenya - as amended in 1997. Savings and credit cooperative societies (SACCOs) are registered and regulated under the Co-operative Societies Act. SACCOs are accorded the same treatment as producer or marketing cooperatives, and to qualify for registration they are not required to raise any capital. In addition, SACCO’s are restricted in terms of where to invest their funds of deposits (SACCOs Act, 2008). 

Three types of cooperatives are recognized in the Act; Primary Cooperatives, Cooperative Unions and Apex Cooperatives. SACCOs fall in the category of Primary Cooperatives. Before the 1990’s, only employer – based SACCOs were operational in the country with employment as the common bond (World Council of Credit Unions, 2005). This system locked out a large number of people who were self-employed. An amendment to the Act in1997 recognized the possibility of forming a SACCO on a base other than employment. This development ushered in a new category, referred to as rural SACCOs. Their activities derive from agricultural produce being marketed through an organized system such as marketing cooperative societies. The reforms also ushered in the formation of SACCOs among informal sector operators engaged in public transport, textiles and commerce. Informal sector SACCOs are referred to as “rural” and employer – based SACCOs are referred to as “urban”. 

The SACCO sub sector comprises both deposit taking and non-deposit taking SACCOs. Deposits taking SACCOs are licensed and regulated by SASRA while non-deposit taking SACCOs are supervised by the Commissioner for Co-operatives. SASRA licenses SACCOs that have been duly registered under the Cooperative Societies Act CAP 490 (Sacco Societies Regulatory Authority, 2012). As at 31st December 2012, the total number of deposit taking SACCOs was 215 of which124 had been licensed. The remaining 91 SACCOs were at different levels of compliance with the provisions of the law. All deposit taking SACCOs were in operation prior to establishment of SASRA in 2009 and have applied to be considered for licensing as undertaking deposit taking SACCOs business. They are spread across the various counties in the country and are categorized as follows: Government based SACCOs (87); Farmers based SACCOs (74); 

Private institutions based SACCOs (24); and, Community based SACCOs (30), (Sacco Societies Regulatory Authority, 2012).

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Item Type: Kenyan Postgraduate Material  |  Attribute: 62 pages  |  Chapters: 1-5
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