Determinants of liquidity of Savings and Credit Co-operative Organisations in Nairobi County

Abstract

Liquidity is the ability of a financial institution or the ability of an organization to meet its financial obligation as they fall due. Liquidity is an important aspect in a company when achieving overall short and long-term financial objectives while also maximizing the owner's wealth and protecting them against the dynamics in the market. In SACCOs, liquidity is important, as lack of liquidity or liquid assets leads to bankruptcy as the institution will not be able to cover for its cash demands as they fall due. Therefore, managing liquidity is a top priority of deposit taking SACCOs. To manage liquidity effectively a good understanding of the factors affecting liquidity is critical. The current study wanted to find out the determinants of liquidity of SACCOs in Nairobi County alongside other factors such as capital adequacy ratio, collection policy, and the credit policy. This study is based on two theories, which are Liquidity Preference theory, and free cash flow theory. The study used a descriptive research design. To facilitate this, research was done on deposit taking SACCOs operating within Nairobi. The data collection involved a questionnaire based on a five-point Likert scale. The study relied on secondary and primary data sources. Descriptive statistics were employed to analyze quantitative data. The study employed the ordinal regression analysis model using the Statistical Package for Social Sciences (SPSS). Data was presented in the form of tables. From the results capital adequacy (r=0.745, p<O.OS) was found to adequately affect the liquidity in SACCOs. This shows that SACCOs associated with high levels of capital being liquid as compared to SACCOs with relatively less capital. Therefore, the effect of capital adequacy in SACCOs should not be underestimated as highly affect the level of liquidity in SACCOs. To effectively maintain, favorable levels of liquidity, it was recommended that financial institutions should capitalize on reviewing of credit policies and growth of their firms to increase their capital and assets to efficiently maintain an appropriate level of liquidity. This would ensure that both short and long-term financial obligations are adequately met and operations of the SACCOs run smoothly.