Regulatory Framework and Financial Intermediation Efficiency of Deposit Taking Savings and Credit Cooperative Societies in Kenya

Abstract

The regulation of Deposit Taking Saving and Credit Co-operative societies enhances transparency and accountability in the management of DT SACCO’s. Thus, protecting the interests of members. This may lead to better service to members through provision of timely loans and advances with minimal risk exposures. SACCO’s have been identified as major financial player thus an important player in financial intermediation. Consequently, the current study on the influence of regulatory framework on financial intermediation efficiency of DT SACCO’s in Kenya. The study specifically looked into the effects of capital adequacy, credit management, investment management, and disclosure requirements on financial intermediation efficiency of DT SACCO’s in Kenya and the moderating effect of SACCO size on the effect of regulatory framework on financial intermediation efficiency of DT SACCO’s in Kenya. The study targeted 174 DT SACCO’s operating in Kenya as at 31st December 2019. Data analysis was done using both descriptive and inferential statistics. Descriptive statistics used in the study included measures of central tendency; mean; dispersion and standard deviation. Inferential statistics used included correlation and regression analysis. The study findings showed that there was a persistent increase in financial intermediation efficiency within the period under study and thus can be concluded that as DT SACCOs complied with regulatory framework their financial intermediation efficiency improved. For instance capital adequacy has positive and significant influence on financial intermediation efficiency (β = 0.0212, p value < 0.05), Credit management has positive and significant influence on financial intermediation efficiency of DT SACCOs in Kenya (β= 0.010, p value < 0.05), investment requirement had positive and significant influence on financial intermediation efficiency of DT SACCOs in Kenya (β = 0.071, p value < 0.05), disclosure requirements had positive and significant influence on financial intermediation efficiency of DT SACCOs in Kenya (β= 0.0013, p value < 0.05) while investment management had positive and significant influence on financial intermediation efficiency of DT SACCOs in Kenya (β = 0.0371, p value < 0.05). Size of DT SACCO’s was found to have positive and significant moderating effect on the influence of regulatory framework on financial intermediation efficiency of DT SACCOs in Kenya. Thus, there is need for DT SACCOs to optimize their sizes so as to enhance their financial intermediation efficiency in their respective areas of operations. Pure efficiency was lower than scale efficiency throughout the period under study, thus there is need for management to examine their performance inefficiencies so as to minimize wastages and spillage of performance opportunities. Future study may segregate DT SACCOs according to sectors and examine the influence of regulatory framework on financial intermediation efficiency of DT SACCOs in Kenya.