Loan Portfolio Diversification and Liquidity Risk of Deposit-Taking Savings and Credit Co-operative Organizations.

Abstract

SACCOs play a crucial role in providing financial services to the section of the population that is left out by banks and other financial institutions. SACCOs, especially deposit-taking ones face various challenges in their daily operations, including difficulties in balancing their liquidity. The aim of this paper was to determine the influence of loan portfolio diversification on liquidity risk of deposit-taking SACCOs in Kenya. It specifically sought to test the hypothesis: Loan portfolio diversification has no significant influence on liquidity risk of deposit-taking SACCOs in Kenya. The researcher made use of secondary data collected from audited financial statements of deposit-taking SACCOs submitted to SASRA. Collected data encompassed panel data spanning a period of five years from 2013 to 2017 across deposit-taking SACCOs. The data was analyzed using panel data analysis. Regression and correlation analysis were also conducted to test the existing relationship between the dependent and independent variables. It was found that loan portfolio diversification had a significant influence on the liquidity of deposit taking SACCOs in Kenya. We recommend that SACCO Societies Regulatory Authority (SASRA) should review or formulate tight guidelines to be followed when SACCOs advance loans for personal use.