Effect of Loan Management Practices on Financial Performance of Umurenge Saving and Credit Cooperatives in Nyanza District

Abstract

The general objective of this study was to assess the effect of loan management practices on financial performance of U-SACCOs in Nyanza District. This research adopted a survey research design using quantitative method. The target population of this study was senior employees and board members of Umurenge SACCOS of Busoro, Kibirizi, Kigoma, Nyagisozi, and Rwabicuma in Nyanza District. This study used 102 respondents, for choosing 102 respondents stratified sampling technique was used. Finally, research questionnaires were established to collect data and data was processed and analyzed through statistical product and service solutions (SPSS) version 21. Therefore, finding showed that most of the respondents agreed and strong agreed that loan management practices used are collection policy, analysis of an applicant’s TransUnion report, credit risk assessment, membership vetting and enrollment, and loan appraisal in loan management of U-SACCOs in Nyanza District. The collected data showed that above 98% of respondents confirmed that net profit, return on equity, liquidity ratio, return of asset and capital adequacy ratio are indicators of financial performance. Bivariate associations between loan management practices and financial performance shows that loan appraisal and net profit margin are significant associated with p-value = 0.039; collection policy and return on asset are significantly associated with p value = 0.020; membership vetting and enrollment and return on asset are significantly associated with p value = 0.020; credit risk assessment and liquidity ratio are significantly associated with p value 0.029. Data analysis showed that loan management practices mostly used by sampled U-SACCOs significantly predict the financial performance at p-value less than 0.05 by using ANOVA and coefficients analysis. The summary model indicates variances that are predicted by loan management practices on financial performance and they vary from 29.2 to 100%. In general, finding revealed that loan management practices significantly have a positive effect on financial performance on Umurenge Saving and Credit Cooperatives in Nyanza District. Based on the conclusions made, the researcher recommended that the governance and management of Umurenge Saccos must train the personnel and elected members on the effect of loan management practices on the financial performance of Umurenge Saving and Credit Cooperatives. The study helps governance and management of U-SACCOS to well understand the effect of loan management practices on financial performance and hence improve their quality for U-SACCOS’sustainability.