African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4131

Full Length Research Paper

The link between financial performance and loan repayment management in Tanzanian SACCOS

Benson Otieno Ndiege*
  • Benson Otieno Ndiege*
  • Moshi Co-operative University, Moshi, Tanzania.
  • Google Scholar
Lucas Mataba
  • Lucas Mataba
  • Moshi Co-operative University, Moshi, Tanzania.
  • Google Scholar
Margret Msonganzila
  • Margret Msonganzila
  • Moshi Co-operative University, Moshi, Tanzania.
  • Google Scholar
Kelvin Luka Nzilano
  • Kelvin Luka Nzilano
  • Moshi Co-operative University, Moshi, Tanzania.
  • Google Scholar


  •  Received: 30 August 2015
  •  Accepted: 20 November 2015
  •  Published: 28 February 2016

Abstract

The Savings and Credit Cooperative Societies (SACCOS) which are co-operative financial models are flourishing in most of the developing economies recently. However, loan repayment capacity remains a challenge that threatens their future. Using financial statements data for the year 2012, from 36 SACCOS in Kilimanjaro Region, Tanzania, and using descriptive statistics and regression models in the analysis, this study examines the relationship between financial performance and loan repayment capacity. It thus examines the extent by which SACCOS are capable of recovering the loan issued and also the financial ratios that explain loan repayment capacity in SACCOS. The study depicts that there is a severe financial risk management problem among Tanzanian SACCOS. Focusing on sustainability is significant for improvements of loan repayment, but focusing on profitability in SACCOS results to an adverse loan repayment. The study asserts that the primary focus of SACCOS should not be profit but member’s wealth maximization and sustainability of the institution. Moreover, we suggest that in addition the traditional means of dealing with financial risk, the uses of a modern risk management tool like credit scoring should be considered in evaluating borrowers.

Key words: SACCOS, loan repayment, Tanzania.