The Effects of dividend policy on the sustainability of Deposit-Taking Saccos in Kenya: the moderating role of inflation

Abstract

Deposit-taking Savings and Credit Cooperative Organizations (SACCOs) in Kenya play a critical role in financial inclusion, yet they face the challenge of balancing dividend distribution with long term sustainability. This study investigates the effect of dividend policy on the sustainability of deposit-taking SACCOs, with a particular focus on the moderating role of inflation. Drawing on Signaling, Agency, and Pecking Order theories, the study utilizes a descriptive research design and secondary panel data from 176 SACCOs regulated by the Sacco Societies Regulatory Authority (SASRA) between 2018 and 2023. Key variables examined include dividend payout ratios, retained earnings, member returns, and capital adequacy. Regression analysis, supported by diagnostic tests, was employed to assess the strength and significance of relationships. The findings indicate a strong relationship between dividend policy variables and sustainability. Dividend payouts, member returns, capital adequacy, and inflation were found to have significant positive effects, while retained earnings had a negative and statistically insignificant impact in the general model. Although inflation had a significant direct effect on SACCO sustainability, its moderating influence on the dividend policy-sustainability relationship was marginal. The study concludes that structured dividend policies, adequate capitalization, and strategies to cushion against inflation are critical for SACCO sustainability. It recommends that SACCOs strengthen their capital bases and align dividend practices with long-term objectives. Policymakers should provide clear guidelines on dividend policy and enhance regulatory oversight. Further research should consider the role of technological innovation and conduct comparative analyses across financial institutions. Keywords: Dividend policy, financial sustainability, SACCO (Savings and Credit Cooperative Organizations), retained earnings, capital adequacy, regression analysis