Moral Hazard Related Determinants of Bad Debts in Deposit Taking Saccos in Nairobi County
Abstract
The purpose of this study was to assess the moral hazard related determinants of bad debts in DT SACCOs in Nairobi County. The researcher used a descriptive cross-sectional research design in highlighting the determinants of the level of bad debts of SACCOs in Nairobi County. The study used census technique which involves studying the entire population. All the 43 deposit taking SACCOs licensed by SASRA were selected as sampling units. The data was analyzed using quantitative techniques guided by SPSS system of analysis. The presentation of analyzed data was in form of tables, graph and charts. The regression model was used in analyzing the moral hazard related determinants of bad debts in deposit taking SACCO’s in Kenya. The results revealed that moral hazard related determinants and level of bad debts have a positive and significant relationship. The study recommended that the SACCOs should discourage their borrowers from diverting their loans from its original use that they have agreed. This can be done by making follow up of the borrowers and how they are using the loans. This will minimize the number of bad debts in the deposit taking SACCOs. The SACCOs should also have favorable terms of giving loans to their customers so that the customers can be willing to repay back the loans. The Sacco employees should also ensure they have collected all the relevant information from the borrowers so as to avoid false from the borrowers. False information causes increase in bad debts in the long run.
Keywords: Moral Hazard, Bad debts, Deposit Taking SACCOS.
References
Arsyad, L. (2015). An Assessment of Microfinance Institution Performance. GadjahMada International Journal of Business, 7(3).
Ayodele, U., Thomas, T. and Raphael Ajayi, R., (2014) Impact of Credit Policy on the Performance of Nigerian Commercial Banks using Zenith Bank Plc. Research Paper
Banks, J. S., & Sundaram, R. K. (2013). Adverse selection and moral hazard in a repeated elections model. ch, 12, 295-311.
Boehm, T. P., and Schlottmann, A., (2007), “Mortgage pricing differentials across Hispanic, African-American, and White households: Evidence from the American Housing Survey”, Cityscape, 93-136.
Bwana, K. M. (2013). Issues in SACCOS development in Kenya and Tanzania: The historical and development perspectives.
Cambridge. Byusa, V & Nkusi, D. (2012). Effects of credit policy on bank performance in selected Rwandan Commercial banks; Rwanda Journal Volume 26, Series B: Social Sciences
Cincinelli, P., & Piatti, D. (2017). Non-Performing Loans, Moral Hazard & Supervisory Authority: The Italian Banking System. Journal of Financial Management, Markets and Institutions, (1), 5-34.
Gatuhu, R. N. (2013). The effect of credit appraisal techniques on the financial performance of microfinance institutions in Kenya. Unpublished MBA Dissertation, University of Nairobi, Nairobi.
Gweyi, M. O. (2018). Influence of Financial Risk on Financial Performance of Deposit Taking Savings and Credit Co-operatives in Kenya (Doctoral dissertation, JKUAT-COHRED).
Kilonzi, B. K. (2012). The impact of SASRA regulations on the financial performance of SACCOs in Kenya. Unpublished MBA project, Nairobi: University of Nairobi.
Malamsha, K. C. T., & Kayunze, K. (2014). Success characteristics of savings and credit co-operative societies (SACCOS) in Tanzania. Journal of Co-Operative and Business Studies (JCBS), 2(1).
Muriithi, M. (2013). The causes of non-performing loans in SACCOS in Kenya. Unpublished Thesis, University of Nairobi.
Ntiamoah, P. E., Diana, F. and Kwamega, E (2014) Assessment of the Relationship between Credit Management Practices and Loan Performance, Journal of Risk Finance, vol. 8, pp. 56 ,71
Owino, M., & Otieno, M. (2013). The Effect of the Lending Policies on the Levels of Non-Performing Loans (NPLS) of Commercial Banks in Kenya. Unpublished Thesis, University of Nairobi.
Prescott, E. C., & Townsend, R. M. (2014). Pareto optima and competitive equilibria with adverse selection and moral hazard. Econometrica: Journal of the Econometric Society, 21-45.
Simtowe, F., Zeller, M., & Phiri, A. (2006). Determinants of moral hazard in microfinance: Empirical evidence from joint liability lending programs in Malawi. African review of money finance and banking, 5-38.
Stiglitz, J. (2001). Principles of financial regulation: a dynamic portfolio approach’. The World Bank Research Observer, Vol.16 (1):1-18.
Thuo, C. W. (2016). Effect of credit information sharing on the financial performance of commercial banks in Kenya (Doctoral dissertation, Dissertation University of Nairobi).
Viswanadham, N., & Nahid, B. (2015). Determinants of Non-Performing Loans in Commercial Banks: A Study of NBC Bank Dodoma Tanzania. International Journal of Finance & Banking Studies, 4(1), 70.
World Council of Credit Unions, (2009); “Credit Union Best Practices.” Retrieved (3rd March2010). Online topical documents available at: http://www.woccu.org.
