Credit Risk Management Practices and Financial Performance of Registered Deposit-Taking Saccos in The Coastal Region, Kenya

This study examined the effect of credit risk management practices on the financial performance of registered Deposit-Taking SACCOs in the Coastal Region of Kenya. The objectives of the study were to determine the effects of credit appraisal methods, credit risk identification, credit risk mitigation practices, and credit risk monitoring on SACCO financial performance. The study focused on SACCOs operating in the Coastal Region, including those headquartered elsewhere but with branches in the region. The theoretical framework was guided by Asymmetric Information Theory, Transaction Costs Theory, the 5 C’s Model for Client Assessment, and Credit Liquidity Theory. A non-experimental correlational research design was adopted, targeting 30 participants from 10 SACCOs using a census sampling approach. Primary data were collected through structured questionnaires, with validity and reliability ensured through expert review and a pilot study. Data were analyzed using SPSS, and inferential statistics were performed using a multiple linear regression model. The findings revealed that credit risk identification (ρ < 0.001, β= 0.312) and credit risk mitigation practices (ρ < 0.001, β = 0.511) had a statistically significant positive effect on financial performance, while client appraisal methods (ρ = 0.084, β = 0.142) and credit risk monitoring (ρ = 0.221, β = 0.119) were not statistically significant. Based on these results, the study recommends that SACCOs strengthen credit risk identification and mitigation strategies, adopt effective client appraisal methods, and enhance monitoring practices to the extent feasible. The study contributes valuable insights for SACCO managers, policymakers, investors, and researchers seeking to improve financial performance through effective credit risk management.