Influence of Members’ Demographic Characteristics on Loan Default in Savings and Credit Co-Operative Societies in Kiambu County.

Abstract

The aim of the study was to determine the influence of member’s demographic characteristics on loan default in SACCOs in Kiambu County, Kenya. The major source of income for Savings and Credit Co-operatives Societies (SACCOs) is interest on loans and this makes loaning the backbone of the Savings and Credit Co-operatives Societies. Despite the growth of the Savings and Credit Co-operatives Societies industry, defaults on loans pose the utmost danger to the steadiness of the multi-billion-shilling Savings and Credit Co-operatives Societies movement. Despite studies being conducted, none of them has addressed influence of demographic features on loan defaults in SACCOs. Specifically, the researcher sought to investigate the influence of member demographic characteristics on loan default in Savings and Credit Co-operatives Societies in Kiambu County and to explore the moderating effect of loan repayment terms to member demographic characteristics on loan default in Savings and Credit Co-operatives Societies in Kiambu County. The research utilized descriptive survey design. The target populace was 301 Savings and Credit Co-operatives Societies in Kiambu County which were active by end of year 2017 and a sample of 172 Savings and Credit Co-operatives Societies derived using Yamane formula. Stratified random sampling was employed and the sub-counties were used as strata while the respondents were randomly selected with the help of random number tables. A questionnaire containing closed-ended and Likert questions was employed gathering primary data. The results got scrutinized by use of descriptive and inferential statistics. The specific descriptive results were means, frequencies and percentages whereas the specific inferential statistics were regressions. Marital status, age, gender, education level were found to be satisfactory in explaining 57.1% of loan default in Savings and Credit Co-operatives Societies. Regression of coefficients showed that marital status and loan default in Savings and Credit Co-operatives Societies have a negative and substantial correlation, gender and loan default in Savings and Credit Co-operatives Societies have a positive and substantial correlation, age and loan default in Savings and Credit Co-operatives Societies have an undesirable and significant relationship while level of education and loan default in Savings and Credit Co operatives Societies have a positive and substantial correlation. The R2 of the model summary prior to getting moderated was 57.1% but after moderation the R2 declined to 54.6% implying that loan repayment terms reduce loan default rates. The study concludes that educational level, gender, marital status, and age are significant determinants of loan nonpayment rate. The investigation indorses proper background checks of the customers to ensure that loanees are credit worth with no bad record on loan repayment. It additionally recommends that Savings and Credit Co-operatives Societies ought to apply effectual and operative debt risk supervision methods and operative repayment terms that will guarantee that loans get harmonized with capability of the borrower to service them and that loan nonpayers get anticipated and appropriate action instituted to diminish the same. The investigation also recommends that Savings and Credit Co-operatives Societies ought to pool together and launch a credit material bureau to which the lenders could make reference prior to extending credit facilities.