Financing decision practices,size of savings and credit cooperative organization (Sacco) and financial sustainability of deposit-taking savings and credit co-operative societies in Kenya

Abstract

Savings and Credit Cooperative Organizations (SACCOs) play a pivotal role in promoting financial inclusion, reducing poverty, and supporting social welfare especially in rural and underserved areas. However, 21% of DT-SACCOs do not operate with prudent financing decisions exposing themselves to financial stress and economic shocks. Even among the SACCOs that met compliance requirements, a drop in the capital adequacy ratio from 16.4% in year 2022 to 16.1% in year 2023 signaled alarming financial strain posing a threat to the existing SACCOs. Alarmingly, 35% of DT-SACCOs have ceased operations attributable to improper financing decisions with three delicensed in January 2025, raising significant concerns over their long-term financial health. Thus, the current study aimed to assess the moderating effect of SACCO size on the relationship between financing decision practices and the financial sustainability of Deposit-Taking Savings and Credit Cooperative Organizations (DT-SACCOs) in Kenya. Anchored on the pecking order theory, the research adopted a positivist paradigm and a cross-sectional survey design. A total of 176 finance managers representing 176 licensed DT-SACCOs constituted the study population. Data were collected by structured questionnaires with a 98% response rate as a sample of 122 respondents was selected by Yamane’s formula. Results from a binary logistic regression indicated that introducing the moderator led to a slight increase in the Nagelkerke R², while the inclusion of the interaction terms further strengthened the relationship between predictor variables and financial sustainability. The findings confirmed that SACCO size had a statistically significant moderating effect on this relationship. This study recommends integrating scenario-based stress testing into financing decisions to assess their long-term impact on different funding structures, so as to facilitate their confrontation of different economic conditions.