Corporate Governance Practices and Performance of Saving and Credit Cooperative Societies in Nairobi City County, Kenya
DOI:
https://doi.org/10.53819/81018102t5381Abstract
Savings and Credit Cooperative Societies (SACCOs) in Kenya has not been able to realize their full potential in terms of performance over the past several years. Both the capital adequacy of the company, which fell from 74.60% in 2021 to 72.26% in 2022, and the quality of assets, which declined from 109.48% in 2020 to 74.07% in 2022, indicated this sub-optimal performance. Savings and credit cooperative societies in Kenya have recently adopted corporate governance principles to address performance challenges. This study examined the impact of governance practices on SACCOs in Nairobi County, focusing on the relationship between governance and performance to improve efficiency and profitability. The research analyzed SACCO performance through board diversity, independence, meetings, and transparency. It incorporated theoretical frameworks, including the balanced scorecard, resource dependency, stakeholder, and agency theories, ensuring a comprehensive analysis. Using a descriptive research design, questionnaires collected primary data from 525 SACCO members. A sample size of 228, determined via Yamane Taro’s 1967 formula, included directors, financial managers, and HR managers. Pilot tests assessed validity and reliability, using Cronbach’s Alpha for reliability and concept, face, and content validity. Quantitative analysis applied descriptive and inferential statistics, including Pearson’s correlation and regression models, with findings presented via SPSS version 28, tables, graphs, and distribution plots. The study confirmed that board diversity, independence, meeting frequency, and transparency significantly enhance SACCO performance. Strong governance frameworks drive better financial outcomes, emphasizing that board autonomy in decision-making is key to organizational effectiveness. The study concluded that regular meetings facilitate effective communication and coordination between management and the board, enabling timely decision-making and fostering a collaborative environment. The study also concluded that regular updates on financial performance and accessible financial statements enhance stakeholder trust and engagement. The study recommends regular assessments of board composition in order to identify areas for improvement and to foster a more collaborative environment. SACCOs should also implement regular independent audits and ensure that the findings are transparently communicated to all stakeholders, thereby fostering a culture of accountability and improvement.
Keywords: Corporate Governance, Performance, SACCOs, Nairobi City County, Kenya
References
Almaqtari F. A, Farhan NHS, Al-Hattami HM, & Elsheikh. T (2022) the moderation role of board independence change in the relationship between board characteristics, related party transactions, and financial performance. PLoS ONE 17(12, 1-38. https://doi.org/10.1371/journal.pone.027915
Ananzeh, H., Al Amosh, H., & Albitar, K. (2022). The effect of corporate governance quality and its mechanisms on firm philanthropic donations. International Journal of Accounting & Information Management, 30(4), 477-501. doi:https://doi.org/10.1108/IJAIM-12-2021-0248
Aswathy, M., & Chandramohan, S. (2018). Impact of Corporate Goververnance on Firm Performance: Empirical Review from India. International Journal of Research in Humanities, Arts and Literature, 6(2), 209-218. Retrieved from http://www.impactjournals.us/
Bahrawe, S. (2024). Effect of The Board of Directors Size, Independence, and Frequency of Board Meetings on Audit Fees: Evidence From GCC Market. Revista De Gestão Social E Ambiental, 18(3), e07286. https://doi.org/10.24857/rgsa.v18n3-199
Bhatia, M., Bhullar, P. S., Roy, D., & Tandon, D. (2022). Board Gender Diversity and the Indian Banking Sector: A Bibliometric analysis. Indian Journal of Corporate Governance, 15(2), 256–279. https://doi.org/10.1177/09746862221126337
Bhimavarapu, V. M., Rastogi, S., Kanoujiya, J., & Rawal, A. (2023). Repercussion of financial distress and corporate disclosure on the valuation of non-financial firms in India. Future Business Journal, 9(1). 2-19, https://doi.org/10.1186/s43093-023-00248-7
Bogamuwa, M. M., Karunathilaka, K. A., & Gamage, S. K. (2020). The Effect of Corporate Governance Practices on Financial Performance: Evidence form Listed Insurance Companies In the Colombo Stock Exchange. 3rd Annual Research Symposium in Management (pp. 228-231). Sirlanka: Department of Insurance and Valuation, Faculty of Business Studies and Finance, Wayamba University of Sri lank. Retrieved from https://www.researchgate.net/publication/353944621
Božić, V., & Poola, I. (2023). Measuring organizational performance. ResearchGate. https://doi.org/10.13140/RG.2.2.20225.12642Cahyono, R. D.,
Cardillo, G., Onali, E., & Torluccio, G. (2021). Does gender diversity on banks’ boards matter? Evidence from public bailouts. Journal of Corporate Finance, 71, 1-33. https://doi.org/10.1016/j.jcorpfin.2020.101560CBK. (2023). Central Bank of Kenya.
Dang, T. T., Ho, T. N., & Nguyen, D. N. (2023). Board gender diversity and financial stability: Evidence from microfinance institutions. Cogent Economics & Finance, 11(2). https://doi.org/10.1080/23322039.2023.2244860
Demartini, M. C., & Otley, D. (2020). Beyond the system vs. package dualism in Performance Management Systems design: A loose coupling approach. Accounting Organizations and Society, 86, 101072. https://doi.org/10.1016/j.aos.2019.101072
Dzingai, I., & Fakoye, B. M. (2017). Effect of Corporate Governance Structure on the Financial Performance of Johannesburg Stock Exchange (JSE)-Listed Mining Firms. MDPI Journals, 9(6), 1-15. doi:https://doi.org/10.3390/su9060867
Hamud, B. N., & Opuodho, G. (2019). Effect of Corporate Governance on Financial Performance of the Commercial Banks in Kenya. International Journal of Recent Research in Commerce Economics and Management (IJRRCEM), 6(4), 177-184. Retrieved from www.paperpublications.org
Hu, X., Lin, D., & Tosun, O. K. (2022). The effect of board independence on firm performance – new evidence from product market conditions. The European Journal of Finance, 29(4), 363–392. https://doi.org/10.1080/1351847X.2022.2049448
Hussain, M. D., Azhar, Z., & Rahman, I. K. A. (2021). Effects of board independence on microfinance institutions’ performance: The case of Bangladesh. Asian Journal of Accounting Perspectives, 14(1), 44–67. https://doi.org/10.22452/ajap.vol14no1.3
Kenani, I. M. (2018). Corporate governance and performance of savings and credit cooperative societies in Kisii County, Kenya. International academic journal of human resource and business administration, 13(4), Pages 101-123.
Innayah, M. N., & Pratama, B. C. (2021). Board diversity and its effects on firm performance and risk: A study in banking Firms. Journal of Accounting and Investment, 22(1), 206-220. https://doi.org/10.18196/jai.v22i1.10005
Kanoujiya, J., Abraham, R., Rastogi, S., & Bhimavarapu, V. M. (2023). Transparency and Disclosure and Financial Distress of Non-Financial Firms in India under Competition: Investors’ Perspective. Journal of Risk and Financial Management, 16(4), 217. https://doi.org/10.3390/jrfm16040217
Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard: Measures that drive performance. Harvard Business Review, 70(1), 71-79. https://steinbeis-bi.de/images/artikel/hbr_1992.pdf
Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard: Translating strategy into action. Harvard Business School Press. https://maaw.info/ArticleSummaries/ArtSumKaplanNorton1996Book.htm
Khalaf, B. A. (2022). The impact of board diversity on the performance of banks. Corporate Governance and Organizational Behavior Review, 6(4), 275–283. https://doi.org/10.22495/cgobrv6i4sip8
Kiptoo, K. I., Kariuki, N. S., & Ocharo, N. K. (2021). Corporate governance and financial performance of insurance firms in Kenya. Cogent Business & Management Journals, 8(1), 1-17. doi:DOI: 10.1080/23311975.2021.1938350
Magoma, A., & Ernest, E. (2023). The impact of board gender diversity on financial performance of listed firms in Tanzania: A panel analysis. International Journal of Research in Business and Social Science (2147- 4478), 12(3), 78–87. https://doi.org/10.20525/ijrbs.v12i3.2511
Maharjan, R. (2019). Corporate Governance and Financial Performance of Insurance Companies in Nepal. International Research Journal of Management Science, 4(1), 99-117. Retrieved from http://www.ncm.edu.np/
Mansur, H., & Anita, T. (2018). The Effect of Corporate Governance on the Financial Performance of Listed Companies in Amman Stock Exchange (Jordan). Journal of Advanced Management Science, 6(2), 97-102.
Mkabane, A. I., Okello, B., & Juma, D. (2020). Effect of board of directors’ independence on growth of teachers’ savings and credit co-operative societies in western Kenya. The Strategic Journal of Business & Change Management, 7(2), 327 – 340.DOI:10.61426/sjbcm.v7i2.1632
Mbugua, J. W., & Kinyua, G. M. (2020). Service Differentiation and Organization Performance: An Empirical analysis of deposit Taking SACCOS in Nairobi County, Kenya. Journal of Business and Economic Development, 5(2), 64. https://doi.org/10.11648/j.jbed.20200502.12
Melnyk, S. A., Bititci, U., Platts, K., Tobias, J., & Andersen, B. (2014). Is performance measurement and management fit for the future? Management Accounting Research, 25(2), 173–186. https://doi.org/10.1016/j.mar.2013.077
Mlay, L., Temu, S., & Mataba, L. (2023). The Impact of Board Characteristics on the Financial Performance of Savings and Credit Co-operative Societies in Arusha and Dar es Salaam, Tanzania. Tanzanian Economic Review, 13(1), 130-155. https://doi.org/10.56279/ter.v13i1.16
Morwabe, B. K., & Muturi, W. (2019). Effect of investment decisions on financial performance of deposit-taking savings and credit cooperative societies in Nairobi County, Kenya. The Strategic Journal of Business & Change Management, 6 (4), 411-427. https://doi.org/10.61426/sjbcm.v6i4.1398
Miano, A., & Gitonga, E. (2020). The Effect of Corporate Governance Practices on Performance of Deposit Taking Savings and Credit Cooperative Societies in Kiambu County, Kenya. International Journal of Business Management, Entrepreneurship and Innovation, 2(2), 64- 81.
Mmari, A. G. (2020). The impact of corporate governance on performance of savings and credit co-operative societies in Tanzania: experience from Moshi Municipality. International Journal of Economics, Commerce and Management, 7(6), 421-439.
Mugenda, O. M., & Mugenda, A. G. (2013). Research methods: Quantitative and qualitative approaches (3rd ed.). Nairobi Kenya: Act Press.
Mutua, J. (2020). “Troubled Ekeza Sacco begins refunding members” . Retrieved from Businessdailyafrica.com: Deposithttps://www.businessdailyafrica.com/bd/news/troubled-ekeza-sacco-begins refunding-members-deposit-2276306
Ncurai, D., Rambo, C. M., & Oloko, M. (2022). influence of board diversity on performance of deposit taking SACCOs in Nairobi County. International Journal of Management and Commerce Innovations. 10(1), 83-99. Doi.org/10.5281/zenodo.6500290
Ngo, M. T., Le, T. N., Nguyen, N. T., & Luu, T. T. T. (2023). Board Independence and Financial Performance: Empirical Evidence on Mediating Role of Market Competition From the Vietnamese Market. International Journal of Professional Business Review, 8(5), e01498. https://doi.org/10.26668/businessreview/2023.v8i5.1498
Obilikwu, J. A., & Kassah, V. (2023). Effect of board meeting frequency on financial performance of quoted healthcare companies in Nigeria. International Journal of Research Publications, 129(1). https://doi.org/10.47119/ijrp1001291720235277
Ogum, E., & Jagongo, A. (2022). Investment Decisions and Financial Performance of Deposit Taking Savings and Credit Co-Operative Societies in Nairobi County, Kenya. International Journal of Current Aspects in Finance, Banking and Accounting, 4(1), 72-90. https://doi.org/10.35942/ijcfa.v4i1.233
Okeke, M. (2019). Change Management and Organizational Performance in Selected Manufacturing Companies in Anambra State, Nigeria. International journal of Social Sciences and Humanities Invention, 6(5), 5437-5445.
Osedo, O. C., Mwanza, J., & Ogendo, L. J. (2020). The Effect of Corporate Governance on Corporate Performance of General Insurance Companies in Kenya. Scholars Journal of Economics, Business and Management, 7(9), 325-335. Retrieved from https://saspublishers.com/sjebm/
Oyugi, F. O., Iraya, C., Onsomu, Z., & Odock, S. (2024). The Intervening Influence of Internal Controls on the Relationship Between Board Practices and Performance of Government Owned Entities in Kenya. Journal of Applied Business and Economics, 26(1). https://doi.org/10.33423/jabe.v26i1.6807
Rastogi, S. and Kanoujiya, J. (2023), "Does transparency and disclosure (T&D) improve the performance of banks in India?", International Journal of Productivity and Performance Management, 72 (9), 2605-2628. https://doi.org/10.1108/IJPPM-10-2021-0613
Sacco Societies Regulatory Authority (2023). SACCO Supervision Annual Report, 2022 https://www.sasra.go.ke/2023/08/28/sacco-supervision-annual-report-2022/
Saiful, N., & Yanti, N. D. (2024). Board of Commissioners Effectiveness, Transparency, Shari’ah Supervisory Board, and Financial Performance of Indonesian Shari’ah Banks. Jurnal Akuntansi, 14(1), 89–98. https://doi.org/10.33369/jakuntansi.14.1.89-98
SASRA. (2023). The Annual Statutory Report on the operations and performance of SACCO Societies in Kenya. Nairobi, Kenya.
Siswanto, E., Istanti, L. N., Soesetio, Y., & Zen, F. (2021). Impact of Corporate Governance on Financial Performance. Hong Kong Journal of Social Sciences, 58(2), 301-310. Retrieved from (http://creativecommons.org/licenses/by/4.0)
Sumatriani, S., Pagulung, G., Said, D., Pontoh, G. T., & Jamaluddin, J. (2021). The effects of shareholders’ rights, disclosures, and transparency on firm value. The Journal of Asian Finance, Economics and Business, 8(3), 383–390. https://doi.org/10.13106/jafeb.2021.vol8.no3.0383
Temitope, K. O. (2018). The Effect of Corporate Governance on Financial Performance of Listed Companies in Nigeria. European Journal of Accounting, Auditing and Finance Research, 6(9), 85-98. Retrieved from http://www.eajournals.org/
Van De Ven, M., Machado, P. L., Athanasopoulou, A., Aysolmaz, B., & Turetken, O. (2023). Key performance indicators for business models: a systematic review and catalog. Information Systems and e-Business Management, 21(3), 753–794. https://doi.org/10.1007/s10257-023-00650-2
World Council of Credit Unions. (2021). Statistical report: SACCO performance. https://www.woccu.org/
