Prudential Regulations Influence on Financial Performance of Deposit-Taking SACCOs in Kenya: A Panel Data Analysis
Keywords:
Prudential regulations, financial performance, deposit taking Saccos.Abstract
This study explored the influence of prudential regulations on the financial performance of Deposit-Taking Savings and Credit Cooperative Societies (DT-SACCOs) in Kenya, with a focus on liquidity, capital, credit, and investment regulations. Employing a fixed-effects regression model, the study utilized panel data collected from 175 DT-SACCOs registered with the SACCO Societies Regulatory Authority (SASRA) over the period 2015 to 2022. Key findings reveal that liquidity, capital, and investment regulations positively and significantly influence financial performance, underscoring their role in enhancing institutional resilience and operational stability. Conversely, credit regulation was found to have a negative effect, highlighting challenges in balancing stringent credit policies with lending efficiency and non-performing loans management. The results provide evidence for the critical importance of maintaining sufficient liquidity, adhering to capital adequacy standards, and adopting prudent investment strategies to drive financial stability and profitability. However, the negative impact of credit regulations suggests a need for SACCOs to enhance credit risk management practices and borrower profiling mechanisms. These findings emphasize the necessity for a balanced regulatory framework that considers SACCO-specific operational capacities and the broader financial inclusion objectives. This study may contribute to the existing literature by providing empirical insights into the relationship between prudential regulations and financial performance in the SACCO sector. Policymakers and SACCO managers may leverage these findings to refine regulatory policies and promote sustainable financial growth of these financial institutions. Future research could explore the moderating role of governance structures and technological innovations in enhancing SACCOs’ compliance and performance.
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