Liquidity and financial performance of deposit-taking savings and credit co-operative societies [SACCOs] in Nairobi City County, Kenya

Abstract

The financial health of deposit-taking savings and credit co-operative societies (DT-SACCOs) is critically dependent on liquidity because it enables member withdrawals, the settlement of short-term obligations and continued lending. This study examined the relationship between liquidity and financial performance of DT-SACCOs in Nairobi City County, Kenya. The study was anchored in the Resource-Based View (RBV), which emphasises the strategic use of internal resources to sustain organisational performance. A quantitative descriptive-correlational cross-sectional design was used with 2025 secondary financial data sourced from audited annual financial statements and Sacco Societies Regulatory Authority (SASRA) reports. The study adopted a census approach to the 46 licensed DT-SACCOs, with 34 institutions providing complete and internally consistent data for the adjusted model. Return on assets (ROA) was used as the indicator of financial performance, while liquid assets divided by total deposits measured liquidity. Capital adequacy, the non-performing-loan ratio and net interest margin were included as controls, and Pearson correlation and ordinary least-squares regression were estimated in Stata. Liquidity was positively correlated with ROA (r = 0.5138, p = 0.0019), and the adjusted liquidity coefficient remained positive and statistically significant (b = 0.0778, 95% CI [0.0616, 0.0940], p < 0.001). The findings were robust to heteroskedasticity-robust standard errors and the exclusion of four influential observations. The results show a positive relationship between the study liquidity ratio and financial performance, but they do not constitute a direct test of statutory liquidity compliance. Therefore, DT-SACCO boards and managers should incorporate liquidity forecasting, withdrawal monitoring and contingency funding planning into regular financial management while avoiding unnecessarily idle liquidity.