Influence of selected behavioral factors on financial performance of deposit-taking saccos in Kenya

Abstract

Savings and Credit Cooperatives (SACCOs) are the major drivers of economic growth in developing countries and promise future growth and departure from poverty among the low economic regions. In Kenya, there was an increase in total assets from 556.7 billion in 2020 to 627.7 billion in 2021, which represented a 12.7% growth. The gross loans grew from 419.6 billion in 2019 to 474.8 billion in 2020 representing a 13.2% increase. However, SACCOs have continuously faced with large membership withdrawals, withholding of deposits and reduced share contributions. Previous studies concentrated on investigating the facilities offered by SACCOs, number of customers among the main factors in determining the SACCOs financial performance. Some other factors affecting the financial performance of SACCOs emanate from behavioral finance aspects which has received little focus on. This study sought to establish the influence of selected behavioral factors on the financial performance of deposit-taking SACCOs in Kenya. The specific objectives of the study were: to establish the effect of customers’ credit-risk behavior on financial performance of deposit taking SACCOs in Kenya, to determine the influence of customers’ transactions behavior on the financial performance of deposit-taking SACCOs in Kenya and assess the effect of management overconfidence on financial performance deposit-taking SACCOs in Kenya. The study adopted cognitive dissonance and the theory of behavioral finance. A correlational research design was used to establish the association between selected behavioral factors and the financial performance of the deposit-taking SACCOs. The study population was 175 deposit-taking SACCOs licensed by to undertake deposit-taking business in Kenya. The study used census method of sampling and a total of 150 deposit-taking SACCOs were analyzed. Secondary data on selected financial performance indicators were obtained using a data collection sheet from SACCOs financial statements covering from 2015 to 2021. Reliability was tested using the Levin-Lin-Chu unit root test and data was found to be stationary, while face validity was ensured using experts judgment and the tool was approved as valid. Both descriptive and inferential data analysis methods were used in the analysis, Linear and multiple regression analysis was also used. Results were presented using graphs and tables. The findings revealed that selected behavioral factors explains 22% variation of financial performance of deposit-taking SACCOs (R2= 0.22). The results further indicated that customer’s transaction has positive and significant effect; (B =0.015, p=0.000) on financial performance of deposit-taking SACCOs in kenya; management overconfidence negative and significant effect; (B =-0.043, p=0.000) while customer credit risk behavior has a positive and significant effect (B=0.687, p=0.000) on financial performance of deposit-taking SACCOs in Kenya. This implies that both customer transaction behavior and credit risk behavior positively and significantly affect financial performance, while management overconfidence negatively and significantly affects financial performance of deposit-taking SACCOs in kenya. The study recommended that SACCOs encourage more transactions and confidence among managers but take more precautions in lending. It is expected that the findings may be substantial for the scholars and will aid the stockholders improve their behavioral financial management to boost returns on their shares.