Financial Stability and Financial Performance of Small and Medium Tiered Deposit Taking Savings and Credit Cooperatives in Kenya.

Abstract

The study sought to analyze the impact of financial stability on the financial performance of small and medium deposit taking savings and credit cooperatives in Kenya. Financial stability was measured by capital adequacy and earnings ability while financial performance was measured by the return on assets. The study purposively sampled one hundred and thirty deposits taking savings and credit cooperatives using the inclusion and exclusion criteria. Secondary data was collected from the published financial statements of the cooperatives and analyzed using descriptive and inferential statistics. Descriptive statistics analysis found that the average capital adequacy is higher than the minimum recommended by the regulator. On average the earnings ability ratio indicated that the cooperatives spend seventy percent of income to cover operational expenses. The study found that capital adequacy and earnings ability have a statistically significant negative impact on financial performance. The study recommends that the cooperatives should consider investing the extra capital in income generating investment opportunities to maximize and to improve cost management by avoiding inefficient operations that cost more but in the long run yield less profits.