Operational Risk Management and Profitability of Regulated Non-Withdrawable Deposit Taking Savings and Credit Cooperative Societies in Nairobi City County, Kenya

Abstract

Profitability is an important element in every organization’s financial productivity. As millions of people across Kenya continue to benefit both directly and indirectly from the cooperatives, their dwindling financial profitability remains of great concern, especially the non-withdrawable cooperatives. This project sought to establish influence of operational risk management on the economic health of non-withdrawable deposit-taking cooperatives in Nairobi City County, Kenya. Specifically, the study sought to evaluate influence of stakeholder engagement, internal-audit, information technology systems, and outside occurrences on the financial health of this niche of cooperatives in Nairobi City County, Kenya. The study was anchored on risk management theory, finance distress theory, market power theory, together with behavioral theories of profitability. A descriptive study design was adopted on a population of thirty non-withdrawable deposit-taking cooperatives from Savings and Credit Cooperative Societies Regulatory Authority. Stratified sampling was used to select these monetary institutions. Data was gathered using survey forms that were dropped off at the interviewees’ offices and collected two weeks later, a timeline that was agreed upon by the researcher and the respondents. Observations were analyzed using summary statistics, in particular mean and standard deviation, and statistical inference analyzed using multiple correlation. To assess the significance of survey parameters, the researcher used Pearson correlation and simple linear regressions. Findings obtained by the study showed that stakeholder engagement, effectively established internal audit, information technology systems and threats from external environment all had significant influence on the profitability of non- withdrawable cooperatives in Nairobi City County, Kenya. The study recommends that an interactive stakeholder relationship, especially employees’ involvement in decision making processes, effective internal audit measures and information technology systems, together with proper contingency plans in place to mitigate external threats, should be adopted in a bid to propel financial institutions’ economic performance to the next level.