The Influence of Investment Regulation on the Financial Performance of Deposit-Taking SACCOs in Kenya: Evidence from Panel Data

Abstract

Investment regulation plays a critical role in safeguarding the financial stability and performance of deposit-taking Savings and Credit Cooperative Societies (SACCOs), especially in emerging economies. In Kenya, the SACCO Societies Act of 2008 and accompanying prudential guidelines by the SACCO Societies Regulatory Authority (SASRA) require SACCOs to comply with strict investment frameworks. However, despite these regulations, financial performance outcomes across SACCOs remain inconsistent, raising questions about the effectiveness of investment regulation in driving performance. This study investigates the influence of investment regulation on the financial performance of deposit-taking SACCOs in Kenya using panel data covering the period 2018–2023. The study employs a descriptive and explanatory research design using secondary data from 175 SASRA-licensed SACCOs. Panel regression analysis was used to determine the relationship between investment regulatory compliance measured by return on investment (ROI), and financial performance indicators, namely return on assets (ROA). The results reveal that investment regulation has a statistically significant and positive effect on SACCO financial performance, suggesting that compliance with prudent investment standards enhances returns and institutional sustainability. The findings have practical implications for SACCO boards, regulators, and policymakers in optimizing investment policies and strengthening regulatory oversight. The study recommends enhanced enforcement of investment diversification requirements and greater capacity building for SACCO management to interpret and implement investment policies effectively.