Moderating Effect of Sacco Size on The Nexus Between Governance Costs and Financial Soundness of Deposit Taking Saccos in Nairobi City County, Kenya

Abstract

In an effort to reduce agency problems the members of Deposit Taking Savings and Credit Co-operatives elect board of directors to offer governance in attaining their economic, social and cultural needs. Nevertheless, governance costs have increased by 36 percent since 2014 to 2019 leading to reduction in surpluses which have rendered an aggregate of 47.32 percent of the Deposit Taking Savings and Credit Co-operatives financially unsound, thus putting 341-billion-member savings at risk. This necessitated the assessment of the moderating effect of SACCO size on governance costs and financial soundness. A descriptive cross-sectional survey design was adopted where data collection sheet was used in secondary data collection. A binary logistic regression results established that with presence of a moderator in the nexus between predictor and response variable, the strength of relationship between variables registered a significant change (15.6 percent to 18.3 percent) as well as with introduction of interaction term (15.6 percent to 19.3 percent). The study concluded that SACCO size portrayed a statistically significant moderating effect between predictor variable and response variable. The study recommends that small size Deposit Taking Savings and Credit Co-operatives should merge with other Deposit Taking Savings and Credit Co-operatives who are of a similar common bond or interest to form larger Deposit Taking Savings and Credit Co-operatives in term of Size so as to achieve financial soundness.