Relationship between Open Membership Policy and Loan Performance in Selected Deposit Taking Saccos in Meru County, Kenya

Abstract

Open membership policy can be a contributory factor when it comes to loan performance in SACCOs and improvement of the same. Taking into consideration opening the bond to outsiders and allowing them to becoming members of SACCO’s even if they do not belong to such a community would increase the share capital volume, loan application volume, interest grown on loans and credit worthiness is also boosted. The study was motivated by the competition in the financial institutions and since SACCOs fall under this category, there was need to find possible ways and strategies that would make them remain in the competitive market while at the same time have improved performance. The purpose of the study was therefore to examine the relationship between open membership policy and loan performance in selected deposit taking SACCO’s in Meru County. The research objectives were to establish how financial risk contributes to loan performance in selected SACCOs deposit taking in Meru County, to establish how repayment period contribute to loan performance in selected deposit taking SACCOs in Meru County, to determine how loan security policy contributes to loan performance in selected deposit taking SACCOs in Meru County and to determine how loan processing period contributes to loan performance in selected deposit taking SACCOs in Meru County. The theories underpinning the study were agency theory, asymmetric information theory and loanable fund theory. The study adopted a descriptive research design and primary data was collected from the respondents while secondary data was retrieved from the published data. The researcher used questionnaire as the data collection instrument. The population of the study was seventy nine respondents from the selected deposit taking SACCO’s in Meru County. The study adopted a census where all the elements in the population were examined. A pilot study was conducted to establish the validity and reliability of the research instruments. The collected data was analyzed using SPSS and further explained using descriptive statistics to enhance understanding thereafter presented in descriptive tables. Multiple linear regression was used to test the relationship between the variables in the study. The study has established that all the open membership policies including Financial Risk Policy, Loan Repayment Period, Loan Security Requirement and Loan Processing Period when regressed severally against loan performance have significant effect. Joint regression of all the open membership policies with loan performance reveals that only Loan Processing Period failed to have a significant effect on loan performance. The study therefore concluded that all the four variables had a significant relationship with the dependent variable and further recommended that SACCOs should put an emphasis on all the variables in the study among other factors to aid in the improvement of loan performance while at the same time having policies that enhance the performance of loans in the deposit taking SACCOs.