Effect of Institutional Innovation on Financial Performance of Deposit Taking Savings and Credit Cooperative Societies in Nakuru County, Kenya

Savings and Credit Cooperative Societies (SACCOs) in Kenya operate in complex and ever changing environment where there are issues that contribute to their poor performance and threaten their growth and survival. In the recent times, SACCOs have faced stiff competition, from new players that have entered the market to offer financial services which SACCOs offer. These challenges have left some of the SACCOs unable to meet their financial obligations as well as offering the services as expected by their customers. The competitors have targeted the middle and low income earners who form the main component of the SACCOs’ market. In addition, commercial banks are now flexible and able to penetrate more into the rural areas where they were not accessible and the SACCOs had taken dominance to offer their services. SACCOs in Kenya are a source of employment for many people. They contribute a great portion of government revenue in form of taxes all of which stand to suffer losses should the poor performance of these SACCOs remain unchecked. The purpose of this study therefore was to examine the effect of institutional innovation on financial performance of deposit taking savings and credit cooperative societies in Nakuru County, Kenya. The study employed a descriptive research design where a population of 35 senior managers of SACCOs in Nakuru County were sampled and targeted. A questionnaire was used to collect data which was administered to all the 36 senior managers. The descriptive analysis gave an overall mean score of 4.42 on 1-5 likert scale. Regression analysis and ANOVA were also used to analyze the data and test the research study hypothesis. The findings of the study indicated that; there was a positive and moderate relationship between institutional innovation and financial performance of deposit taking SACCOs in Kenya and an increase in institutional innovation could lead to increased financial performance. The adjusted R square was 0.438 indicating that institutional innovation can explain 43.8 percent of financial performance. Secondly, institutional innovation had a positive and significant effect on the financial performance of deposit taking savings and credit cooperative societies in Kenya (F = 24.335, p< 0.05). In the modelling it was noted that the constant was zero and could therefore not be included in the model. The study concluded that the level of institutional innovation will contribute to the performance of SACCOs in Nakuru county.

SACCO, Nakuru County, Institutional Innovation, Deposit Taking

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