The Effect of Income Risk Management on Financial Performance of Deposit-Taking SACCOs in Imenti North Sub-County, Kenya

Abstract

The study sought to ascertain the effect of income risk management on financial performance of deposit-taking SACCOs in Imenti North Sub-County, Kenya. A descriptive research design was used. The study focused on 12 DT-SACCOs, with a total of 154 respondents comprising 12 risk managers, 12 operations managers, 12 credit managers, and 118 banking officers. Branch managers were purposively selected, while other respondents were sampled randomly using Slovin’s formula. Data were collected using questionnaires. A pilot study was conducted in two SACCOs in Samburu East Sub-County. Validity was ensured through content, criterion, and construct approaches, while reliability was tested using Cronbach’s Alpha. Data were analyzed using SPSS version 24 through descriptive and inferential statistics, while interviews were analyzed thematically. Financial performance was assessed using liquidity ratios, non-performing loans ratio, and return on assets through horizontal analysis. The majority of respondents indicated that there were ways to manage income fluctuations and that effective income risk management improved the liquidity of their organizations. From these findings, it was evident that proper management of income risk led to improved financial performance in meeting various obligations. It was also evident from the results that SACCOs in Imenti North diversified their sources of income so as to minimize reliance on a single source, hence making them financially stable organizations. It was also worth noting that most respondents did not agree that the imposition of penalties on late payment of loan repayments greatly contributed to the stability of revenues. The ANOVA results showed an F-value of 173.78 with a significance level of 0.000, leading to the rejection of the null hypothesis. The study concluded that effective management of income risk was critical to improving the financial performance of deposit-taking SACCOs in Imenti North Sub-County. Proper management of income risks through monitoring income levels, income diversification, interest rate management, and sound budgeting played an important role in enhancing liquidity and financial stability. SACCO management needs to develop a revenue diversification strategy that includes expanding its investment portfolio and digital financial services, among others, while reducing reliance on interest income. Income forecasting and risk assessments should be incorporated into SACCO operations through qualified and experienced officers to anticipate future variations.