Credit Risk Identification and Financial Performance of Savings and Credit Societies in Homabay County, Kenya

Abstract

Savings and Credit Cooperative Societies (SACCOs) play an important role in savings mobilization and access to affordable credit, but Credit risk remains a challenge to their financial performance. Anchored on Asymmetric Information Theory, a correlational research design was adopted. The population comprised 300 senior managers from 75 registered SACCOs. A stratified sample of 171 managers was selected, and 143 usable questionnaires were returned, representing 83.6% response rate. Data were analyzed using descriptive statistics and simple linear regression, complemented by audited financial data for 2021–2025. Credit risk identification practices were highly implemented, although Credit Reference Bureau reports were comparatively uneven. Credit risk identification had a strong positive relationship with financial performance (R = .678) and explained 46.0% of its variance in financial performance. The model was significant, and the null hypothesis was rejected. The study recommends standardized borrower identification, deepening use of credit-reference, digital profiling tools, and continuous monitoring. 

Keywords:       credit risk identification, financial performance, SACCOs, non-performing loans.