Interest rates drivers and financial performance of deposit-taking savings and credit cooperative societies in Kenya: The role of inflation rate

Kennedy Shibeka Shilaho; Maniagi Musiega; Muli Maingi

doi:10.51867/ajernet.6.2.50

Authors

Shilaho Kennedy Shibeka
kshibekas9@gmail.com
Masinde Muliro University of Science and Technology, Kenya https://orcid.org/0009-0003-0652-1982
Maniagi Musiega Masinde Muliro University of Science and Technology, Kenya https://orcid.org/0000-0003-3248-6933
Muli Maingi Masinde Muliro University of Science and Technology, Kenya https://orcid.org/0009-0005-5328-6641

Keywords:

Credit Co-Operative Societies, Deposit-Taking Saccos, Financial Performance, Interest Rates Drivers, Inflation Rate

Abstract

This study aimed to examine interest rates drivers and the financial performance of deposit taking Savings and Credit Co-operative Societies [SACCOs] in Kenya. The specific objectives were to establish the effect of inflation rate on financial performance of deposit-taking SACCOS in Kenya. The study was anchored on Irving Fisher’s “Quantity Theory of Money.” A descriptive research design and correlational research design was employed in this study. Stratified random sampling was applied on a population of 176 deposit taking SACCOs to select 121 Saccos. The study used secondary data which was obtained from audited annual financial reports and Sacco Society’s Regulatory Authority (SASRA) reports. The population was classified into 3 strata representing three tier sizes of DT-SACCOs in Kenya. A total of 121 audited annual financial reports was sampled for a 7 years’ period from 2016 to 2022. The collected data was analyzed using descriptive and inferential statistics. The results revealed that independent variables used in the research were able to account for about 30.68% (R²=0.3068, P<0.05) of the variations that were noted in the financial performance of Deposit Taking SACCOs in Kenya. A unit increase in inflation rate leads to a 0.889 unit’s reduction in the financial performance (β1=-0.889, t=-92.03, p<0.05). The study concluded that there is significant effect of inflation rate on financial performance of deposit-taking SACCOS in Kenya. The research recommended that Saccos should develop strategies such as real-time inflation monitoring, flexible interest rate structure and risk-based pricing to adjust their loan interest rates more readily in response to inflation changes.

Dimensions

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