Analyzing willingness features of Non-Deposit Taking Savings and Credit Cooperative Organizations on adoption of deposit taking services in Kenya

Abstract

This study showcases an in-depth analysis on the willingness features of Non-Deposit Taking (NDT) Savings and Credit Cooperative Organizations (SACCOs) on adopting deposit taking (DT) services in Kenya. This essentially assesses whether NDT SACCOs have the appetite to transition from solely offering Back Office Service Activity (BOSA) products to introducing Front Office Service Activity (FOSA) products or otherwise. NDT SACCOs have historically struggled in growing membership numbers and keeping them actively engaged in uptake of SACCO products compared to their Deposit Taking (DT) SACCO counterparts. Despite growing demand for loans among NDT SACCOs, they suffered a drop in member deposit growth rates a strong indicator of impending liquidity challenges affecting future capabilities to meet member loan needs. Constrained ability to meet loan demands, reduced membership growth rates and increased member dormancy can contribute to stifled liquidity, poor income diversification and lower profitability. The study research objectives were geared towards investigating the level of willingness of NDT SACCOs to adopt DT services, investigating the features of NDT SACCOs likely to adopt DT services and examining the management perspectives on adoption of DT services. The research was anchored primarily on two theories namely the institutional theory and stewardship theory. The study assessed a target population of 183 NDT SACCOs authorized by Sacco Societies Regulatory Authority (SASRA) as of December 2023 by collecting secondary and primary data. Secondary data was sourced through the regulator in the form of audited accounts to facilitate collection of financial soundness information whereas primary data was obtained through a questionnaire administered online via Google Forms to staff of a managerial or equal rank. The study utilized a Binomial Logistic Regression (BLR) model to analyze the features of NDT SACCOs based on their likelihood to adopt deposit taking services. The research adopted both descriptive and multivariate statistics based on the BLR model to present the findings from the data analysis. The study found that majority of the NDT SACCOs in Kenya were unwilling to transition into DT SACCOs. The study examined key features that affected their willingness to adopt deposit taking services. The study revealed that financial stability features were the most statistically significant with a strong positive impact. Specifically, the financial stability results demonstrated that SACCOs with higher liquidity, stronger profitability and lower non-performing loan books were more likely to transition. Structural features were also found to play a positive role in adoption however governance features like board size and diversity showed no significant influence. Management perspectives investigated highlighted increased membership, improved liquidity and branch expansion as key benefits of adopting deposit taking services. On the contrary, high licensing fees, costly staff recruitment and growing infrastructure expenses were noted as some of the adoption challenges. To enhance the transition of NDT SACCOs in Kenya into DT SACCOs, this study recommends phased regulatory licensing, financial incentives, capacity building programs, and technological adoption to improve financial sustainability. The research suggests future research on long-term SACCO performance, technological innovations, and comparative studies with other African countries. The study advanced a significant knowledge base on the perceptions of NDT SACCOs towards adoption of DT services based on SACCO management reflections for consideration among regulators, policy makers and researchers.