Please enter verification code
Effect of Loan Portfolio Characteristics on the Level of Non-performing Loans for Savings and Credit Co-operative Societies in Kirinyaga County Kenya
International Journal of Finance and Banking Research
Volume 3, Issue 5, October 2017, Pages: 58-69
Received: Apr. 18, 2017; Accepted: Jun. 16, 2017; Published: Nov. 10, 2017
Views 2309      Downloads 288
James Muchiri Ndambiri, Muchiri Ndambiri and Company Consulting Group (MNC), Nairobi, Kenya
Everlyn Ninga Munene, Muchiri Ndambiri and Company Consulting Group (MNC), Nairobi, Kenya
Stephen Muthii Wanjohi, Department Statistics and Actuarial Science, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Article Tools
Follow on us
The main source of income for Savings and Credit Co-operative Societies in Kenya is from interest received from issue of loans to its members. However the issuance of loans has been faced with a lot of challenges as a result of default on repayment of principal loan and interest when they fall due. In the event that this trend is not checked it could lead to collapse of Savings and Credit Co-operative Societies movement and hence have a negative impact on the financial sector. The main objective of the study was to determine the effect of loan portfolio characteristics on the level of Non-Performing Loans for Savings and Credit Co-operative Societies in Kirinyaga County. The study was conducted on Deposit Taking Savings and Credit Co-operative Societies in Kirinyaga County, Kenya. The researcher used both descriptive and causal research design. The Deposit Taking Savings and Credit Co-operative Societies registered by Savings and Credit Co-operative Societies Regulatory Authority for the period 2011-2014 in Kirinyaga County were six and hence a census was conducted. The researcher used secondary data which was obtained from published Savings and Credit Co-operative Societies Annual Financial Statements and Reports and from Savings and Credit Co-operative Societies Supervision Annual Reports for the period 2011-2014 with data collection checklist being used as the instrument for data collection of the models. The findings of the study would be helpful to current and potential investors, regulatory bodies and would add important information to the existing body of literature. The study recommended that Savings and Credit Co-operative Societies should diversify their loan portfolio by advancing loan of different products, consider adjusting loans repayment period appropriately, should not concentrate much on making decisions on interest rates adjustment, ensure that the ratio of Loan to Shareholder equity is high so that they can have a strong asset base thus win public confidence and should consider advancing loans of different amounts since borrowers vary in their credit worthiness.
Loan Portfolio, Loan Tenure, Sacco, Credit Worthiness
To cite this article
James Muchiri Ndambiri, Everlyn Ninga Munene, Stephen Muthii Wanjohi, Effect of Loan Portfolio Characteristics on the Level of Non-performing Loans for Savings and Credit Co-operative Societies in Kirinyaga County Kenya, International Journal of Finance and Banking Research. Vol. 3, No. 5, 2017, pp. 58-69. doi: 10.11648/j.ijfbr.20170305.11
Copyright © 2017 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License ( which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Acharya, V., Hasan, I., Saunders (2004), Should Banks Be Diversified? Evidence from Individual Bank Loan Portfolios. Working Paper, London Business School, London, forthcoming in: Journal of Business (July 2006). Bass Inc. Publication.
Alton R. G and Hazen J. H (2001), “As Economy Flounders, Do We See A Rise in Problem Loans?” Federal Reserve Bank of St. Louis.
Bailey,T. (2001). Applying International Best Practices to South Africa's SACCOs: Published Dissertation. South Africa: De Mont Fort University.
Batra, S. (2003). Developing the Asian Markets for Non-Performing Assets; Developments in India, 3rd Forum on Asian Insolvency Reform, Seoul, Korea.
Bernstein, D. (1996). Asset Quality and Scale economie in Banking: Journal of economics and business, 48:157-166.
Bexley J. B and Nenninger S (2012), Financial Institutions and the Economy. Journal of Accounting and Finance, 12(1) 2012.
BIS. Measuring and Controlling Large Credit Exposures. Basel Committee on Banking Supervision.
Brennan, M. J. (1971). Capital Market Equilibrium with Divergent Borrowing and Lending Rates. The Journal of Financial and Quantitative Analysis, 6(5), 1197–1205.
Business Dictionary (2014). Loa Portfolio. Retrieved from: portfolio.html#ixzz2wb2vY2OU (Accessed 21/03/2014).
Central Bank. (2003). Bank Supervision Annual Report. Nairobi: Central Bank. Central Bank. (2008). Bank Supervision Annual Report. Nairobi: Central Bank. Central Bank. (2010). Bank Supervision Annual Report. Nairobi: Central Bank. Chang, S. J., (1999) Business Group and Social Welfare in emerging Markets.
Chen, M. H., Kim, W. G. and Kim, H. J. (2005). Macro and Non-Macro Explanatory.
Chijoriga, M. M. (2007), “Application of credit scoring and financial distress prediction models to commercial banks’ lending”: The case of Tanzania.
Demsetz, H. (1997) "The Primacy of Economics: An Explanation of the Comparative Success of Economics in the Social Sciences".
Derrick, T. H., Peterson, L., & Premschak, C. (1998). Loan Portfolio Management. Retrieved from:
DeYoung, R., and Rice, T. (2004). How do banks make money? The Fallacies of Fee Income.
Diamond D. W. (1984). Financial Intermediation and Delegated Monitoring, Review of Financial Studies, 51, 393-414.
Diamond, D. W., & Rajan, R. G. (1998). Liquidity Risk, Liquidity Creation and Financial Fragility: A Theory of Banking, Mimeo, University of Chicago.
Emmanuelle, N. Y. S., (2003). A European Study of Bank Interest Margins.
Espinoza R., Prasad A. and Williams O., (2010). Non-Performing Loans in the GCC. Banking and Their Macroeconomic Effect. IMF Working Paper, Vol., pp1- 24, 2010 Available at SSRN: http:// ssrn. Com/abstract=1750712.
Factors of Chinese Hotel Stock Returns. International Journal of Hospitality Management, 24,243-258.
Farm Credit Administration (FCA 1998) Loan Portfolio Management.
French, C. W. (2003). The Treynor Capital Asset Pricing Model. Journal of Investment Management 1 (2): 60–72.
Gehr, A. (1975). Some Tests of the Arbitrage Pricing Theory, Journal of Midwest Finance Association, pp. 91–105.
George, G. E., Miroga, J. B., Ngaruiya, N. W., Mindila, R., Nyakwara, S., Mobisa, M. J., Ongeri J., Mandere, E. N., & Moronge, M. O. (2013). An Analysis of Loan Portfolio Management on Organization Profitability: Case of Commercial Banks in Kenya. Research Journal of Finance and Accounting, 4(8), 24-35.
Goldstein, M., & Turner, P., (1996). Banking crises in emerging Economies: Origins and policy options, Bank for International Settlements (BIS) Economic Papers No. 46: Available at Accessed April 12, 2010.
Gorter and bloem (2002) Non-Performing loans are mainly caused by an inevitable.
Hannah, K., Gekara, M., & Joseph, M. (2013). Effect of operating costs on the financial performance of SACCOs in the banking sector in Kenya. Prime Journal of Business Administration and Management (BAM) ISSN: 2251- 1261. Vol. 4(2), ppp0*. 1359-1363, retrieved from,
Hennie V. G (2003), Analyzing and Managing Banking Risk: A Framework for Assessing Corporate Governance and Financial Risk, 2nd Edition, Washington DC: World Bank Publications.
Hennie, V. G and Sonja,B. (2009): Analyzing banking risk.
Hirtle, B. J, and K. J. Stiroh, 2007. The return to retail and the performance of US banks. Journal of Banking and Finance 31: 1101-1133.
Kathuri, N. J. & Pals, D. A. (1993). Introduction to Educational Research. Njoro, Kenya: Egerton University Education Media Centre.
Kombo, K., & Tromp, D. (2006). Project and Thesis writing: An introduction. Paulines publications Africa: Nairobi Kenya.
Kothari, C. R. (2004). Research methodology: Methods& Techniques, New Delhi India: New Age international (p) limited. 2nd E. D.
kwan, S. H., and E. S. Laderman. (1999). "On the portfolio effects of financial convergence: A review of the literature." Fed. Reserve Bank San Francisco Rev. 2, 18-31.
Laeven, L. and R. Levine. (2007). "Is there a diversification discount in financial conglomerates?" J. Finan. Econ. 85, 331-367.
Maina, J. M. (2003). Relationship between Credit Risk Management Practices and Financial Performance of Microfinance Institutions in Kenya. Unpublished MBA Project. University of Nairobi.
Markowitz (1952), Portfolio Selection. Journal of finance, Volume 7, issue 1, p 77-91.
McNulty, J., Akhigbe, A. &Verbrugge, J. (2001). Small Bank loan quality in a Deregulated Environment: The information advantage hypothesis. Journal of Economics and Business, 53, 325-39.
Micco, A., Panizza (2004). “Bank ownership and performance. “ Research Department working paper 518. Washington, DC united states: InterAmerica Development bank, Research Department.
Michael, JN., Vasanthi, G., & Selvaraju, R. (2006). Effect of Non-Performing Assets on Operational Efficiency of Central-Cooperative Banks, Indian Economic Panorama, Vol. 16(3). 33-39.
Mudibo, K. E. (2005 November). Corporate Governance in Cooperatives: the East African Experience. Report Presented at the 3rdPan- Afric Consultative Forum on Corporate Governance, Dakar: Senegal.
Mugenda. O and Mugenda A. (2003); Research methods: Quantitative and Qualitative.
Myers, S. (2000) The Determinants of Corporate Borrowing, Journal of Financial Economics, 5, 147-175.
Ngugi, R. W., (2001). An Empirical Analysis of Interest Rate Spread in Kenya. African Economic Research Consortium, Research Paper 106. number of wrong economic decisions by individuals IMF working paper 2003. No. 10(3).
Office of Comptroller of the Currency (OCC 1998). Comptroller’s Handbook (1998): Loan Portfolio Management.
Pelrine, R., & Kabatalya, O. (2005). Savings Habits, Needs and Priorities in Rural Uganda. Kampala: USAID/ Rural SPEED.
Rhyne, E., (2002). The Yin and Yang of Microfinance: Reaching the Poor.
Roll, R., and Ross, S. (1980). An empirical investigation of the arbitrage pricing theory. Journal of Finance 35: 1073-1103.
Ross, S. A. (1976). The Arbitrage Theory of Capital Asset Pricing. Journal of Economic Theory, 13(3), 341–360.
SACCO Societies Regulatory Authority (SASRA) (2012). Sacco Supervision Report: Deposit Taking SACCOs. In house Publication.
SACCO Societies Regulatory Authority (SASRA) (2013). Sacco Supervision Report: Deposit Taking SACCOs. In house Publication.
SACCO Societies Regulatory Authority (SASRA) (2014). Sacco Supervision Report: Deposit Taking SACCOs. In house Publication.
Sala, V. & Saurina, J. (2002), Credit Risk in Two Institutional regimes: Spanish. Sambasivam, Y., & Biruk, A. (2013) Financial Performance analysis of GOHE Co- operatives Savings and Credit Union in Bure Woreda, Ethiopia. International journal research journal of economics and business studies. Debre Markos University, Debre Markos, Ethiopia.
Shao, A. T. (1999): Marketing Research. Ohio: South-Western College Publishing. Sorge, Marco (2004). “Stress-testing financial systems: an overview of current mythologies.” BIS Working Papers No. 165, December.
Stiroh, K. J. (2004b). "Dom Community Banks Benefit from Diversification?" J. Finan. Services Res. 25, 135-160.
Stiroh, K. J. (2006). "A portfolio view of banking with interest and noninterest activities." J. Money, Credit, Banking 38, 1351-1362.
The International Association of Credit Portfolio Managers (IACPM 2005). Sound Practices in Credit Portfolio Management. Retrieved from: (Accessed 20/03/2014).
Tirapat, S., (1999). Solutions of banking crisis, available: www. bank Loans. Published in Bank parikrama, Retriveed 12 February 2010.
Wheelock, D. and P. Wilson. (2002). "Why do banks disappear: the determinants of U. S. bank failures and acquisitions?" Rev. Econ. Statist. 82, 127-138.
Wise Geek (2014). What Is Credit Portfolio Management? Retrieved from: (Accessed on 21/03/2014).
World Council of Credit Unions (WOCCU) (2009) Statistical report, World Council of Credit Unions, Washington D.C.
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
Tel: (001)347-983-5186