Effect of Financial Leverage on Financial Performance of Deposit Taking Savings and Credit Co-operative in Kenya

Abstract

The aim of this study was an attempt to investigate the effect of financial leverage on financial performance of deposit taking Saccos in Kenya. The sample data was extracted from 40 Savings and Credit Co-operative Societies (Saccos) registered by Sacco Society Regulatory Authority (SASRA) extended from the period 2010 to 2012. The secondary data used for analysis was collected from the financial statements of the various deposit taking Saccos. Two basic approaches descriptive and analytical design were adopted. The results show perfect positive correlation between debt equity ratio with return on equity and profit after tax at 99% confidence interval and a weak positive correlation between debt equity ratio with return on assets and income growth. As the scope of study is limited to the deposit taking Saccos and the sample size is small, the findings of the study must be interpreted with caution and the results may not be generalized to the Sacco sector. This is the first study that examines the relationship between financial leverage on financial performance of deposit taking savings and credit co-operative in Kenya.