Effect of Liquidity and Dividend Pay-out on Financial Performance of Deposit Taking SACCOs in Kenya

Abstract

Capital structure is one of the fundamental aspects to the success of Deposit Taking Savings (DPS) and Credit Cooperative Societies (CCS) as it influences the realization of its objectives and goals. The study intended to determine the effect of two capital structure determinants; liquidity and dividend payout, on financial performance as measured by Return on Assets of DPS and CCS, in Kenya. The study was grounded on the Pecking order and Free cash flow capital structure theories. The study utilized a mixed research design using primary and secondary data for the period 2013 to 2017. The population of the study was 174 DPS and CCS. Stratified and purposive sampling technique was employed. Descriptive statistics and a regression model were used to analyze the data. Results revealed that liquidity and dividend pay-out had a significant and positive effect on the financial performance of DPS and CCS in Kenya. The study concluded that liquidity and dividend pay-out play a significant role in the financial performance of DPS and CCS. The study recommends having in place an Assets and Liabilities Committee in each DPS and CCS that would help manage the assets and liabilities of the institution, ensuring adequate liquidity and cash flow management. Having in place a robust dividend policy that addresses; the basis of the rate of payments and activities that would require funding of which internally generated funds by way of dividend retention, is also critical.

Influence of Sacco Lending Rates on Dividend Payout Among DT Saccos in Kenya

“…As a result, Saccos borrow heavily from commercial banks, funds that Saccos use to lend to members. The study concurs with others studies which have found out that saccos will borrow heavily from banks to increase liquidity in order to pay dividends [24]. Importantly, despite the diminished capacity of Saccos to generate local resources, which the evidence on the trend of ROE shows, they sustained a liberal dividend policy between 2012 and 2019.…”

“…Since the p-value was p=0.00, the relationship between sacco lending rate and dividend payout was significant (z=12, p=0.003). Accordingly, sacco lending rates can be deemed as a factor that helps explain variation in the dividend payout of deposit-taking saccos [24]. If so, examining the role of size as a moderating variable was tenable.…”

Loan portfolio planning and financial performance of Savings and Credits Cooperatives in Uganda: Evidences from SACCOs in Rubirizi District, Western Uganda

“…The very low liquidity ratio of SACCOs, which in 2019 stood at 12.8% and in 2021 at 10% and is still below the necessary level of 15%, diminishing earnings, and poor asset quality were all indicators of the poor financial performance of SACCOs (District commercial report, 2021). According to earlier research, the main factors driving SACCOs' poor financial performance were their low return on assets, poor asset quality, insufficient liquidity, and low return on equity (Shibutse, Kalunda & Achoki, 2019). Thus, loan portfolio management is the primary asset and source of revenue for savings and credit cooperatives, but it is also the most significant source of risk for financial institutions (Odhiambo, 2019).…”