Investment Decisions and Financial Performance of Deposit Taking Savings and Credit Co-Operative Societies in Nairobi City County, Kenya

Abstract

It is a requirement for Kenyan SACCOS to conform to regulations set by Sacco Societies Regulatory Authority (SASRA). Deposit Taking (DT) SACCOS are very instrumental towards the financial sector in serving an increasing number of rural and urban households. They are required to submit their statements of financial position, deposit returns statement, investments report, statement of liquidity and capital adequacy return reports. With varying degree of success, DT-SACCOS has invested in non-core business areas. This is especially true of DT-SACCOS which have liberalized their investment portfolios in the wake of competition from commercial banks. This study seeks to examine the impact of investment decisions on the financial performance of DT-SACCOS in Nairobi City County. The specific objectives of the study were to determine the effect of investment in real estate, lending to members for development, FOSA products and money and bond markets on the financial performance of DT-SACCOS in Nairobi City County. The significance of this research is to gain a better knowledge of the nature, breadth and extent to which investment decisions are to be of importance to DT-SACCOS performance. This examination is going to be based on agency, portfolio, liquidity preference and Tobin Q theory of investment. A causal research design of research and a target populace of 40 DT-SACCOS is going to be relied on. In terms of the sample size, all the 40 DT SACCOS are going to be studied. Secondary data matrices were used in collecting data from the finance managers. Adherence to the ethical considerations was also guaranteed at every stage. The study showed that: investment in real estate had an insignificant inverse effect (β= -257.42, p=0.369) on the financial performance of DT-SACCOS in Nairobi City County while investment in lending to members for development had significant positive effect (β=2141.85, p=0.044); investment in FOSA products had insignificant inverse effect (β= -45.86, p=0.617) while investment in money and bond markets had insignificant positive effect (β=547.61, p=0.255) on the financial performance of DT-SACCOS in Nairobi City County. To this effect, the study recommends that DT-SACCOS should increase their investment base on lending to members as they are basically aware of the formative intent of the co-operatives. This means that when more loans are issued to members of the co-operative, they first consider the gains they will get which emanates from these rational investment decisions for their development and hence the financial performance of the DT-SACCOS.