A STUDY ON DETERMINANTS OF FINANCIAL PERFORMANCE OF

SAVING AND CREDIT CO-OPERATIVES WITH REFERENCE TO SODO

ZURIA WOREDA, WOLAIATA ZONE.

A RESEARCH THESIS
By

ABEJE ABERA
Advisor: RAMA MOHAN(PhD)

WOLAITA SODO UNIVERSITY

SCHOOL OF GRADUATE STUDIES DEPARTMENT OF ACCOUNTING AND FINANCE

June, 2017
W/SODO

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 Outlines
 Introduction.
 Statement of the problem.
 Objective of the study.
 hypotheses of the study.
 Research methodology.
 Result and Discussion.
 Conclusions and Recommendations.

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Finance isINTRODUCTION.
the backbone of any business and delivery of
microfinance service to the poor in Ethiopia is used to ensure food
insecurity and reduce poverty .
Although micro-finance service is vital to the society, it is not equally
available to all members of community.
World bank designed strategies to improve the demand and supply
gap of low-income rural clients.
One of its strategies is enhancing service delivering capacity of
Saving and Credit Cooperatives (SACCOs) those established to serve
the interest of economically neglected segment of society.
Saving and Credit Cooperative is “An autonomous association of
persons united voluntarily to meet their common economic, social
and cultural needs and aspirations through a jointly owned and
democratically-controlled financial institution (ICA).
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 Statement of the problem.
Ethiopia has low geographic and demographic bank branches and
microfinance institutions are only reaching a small fraction of the
demand of the poor for financial services.
 Government and people rely on SACCOs as an entry to economic
prosperity and as they can play critical role in rural and urban
development through smoothing financial service.
However, SACCOs organized and started operation in Sodo Zuriya
since 1977s were disable to impact lives of member positively.
Moreover, 53.125% of SACCOs in sodo zuriya found in financial
suffering while micro finance institutions continue to prosper and
boom in an environment and economy.

why? SACCOs were unsuccessful?

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The identified factors by different studies were; Members’ royalty
and Active participation, Organizational and Educational factors,
Management committee, Voice and Effective representation of
SACCO’s.
However, the studies evaluated just a handful(internal) factors
while SACCOs had wide operating environment.
Moreover, studies fail to identify determinants of SACCOs
financial performance particularly.
Therefore, It is worthy to identify determinants their financial
performance before moving to identify determinants of performance
of SACCOs in general.
While it is vital to know what factors does affect financial
performance of SACCOs, such study was not undertaken yet in the
study area with combination of variables as factors of financial
performance (i.e., Competition from Omo MFI, Internal politics,
Members saving cultures, Liquidity management, Operating cost and
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Financial reporting).
General and specific objectives.
To assess financial performance of SACCOs
To determine the extent to which competition from Omo micro finance
institution influences the financial performance of SACCOs.
To investigate the relationship between internal politics and financial
performance of SACCOs.
To explore the influence of members saving culture on financial
performance of SACCOs.
To come across at the relationship between liquidity management and
financial performance.
To examine how operating costs affect the financial performance of
SACCOs.

To analyze the relationship between financial reporting and financial

performance of SACCOs.
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Hypothesis
This study verified six tentative statements. They are ;
•H01: There is no relationship between competition from Omo financial
institutions and financial performance of SACCOs.
•H02: There is no relationship between internal politics and financial
performance of SACCOs.
•H03: There is no relationship between members saving cultures and
financial performances of saving and credit.
• H04:There is no relationship between liquidity management and
financial performance of SACCO.
•H05: There is no relationship between operating costs and financial
performance of SACCOs.
•H06:There is no relationship between financial reporting and financial
performance of saving and credit cooperatives.
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 Research Methodology
Research design - Descriptive survey
Population of the study -Saving and Credit Cooperatives (SACCOs)
Target population -Employees and Members of SACCOs.
Sample size- 142 from which 128 were respondents reached.
Sampling Techniques-Mixed approach.
Source of data- Both primary and secondary data (june,2012-2016).
 Methods of Data analysis -Descriptive and Inferential
 Normality test
Shapiro-Wilk (W-S)
Variables test statistic p-value
Financial Performance 0.857 0.000
Competition from Omo MFI 0.832 0.000
Internal Politics 0.885 0.000
Saving Culture 0.874 0.000
Liquidity Management 0.804 0.000
Operating Costs 0.768 0.000
Financial Reporting. 0.908 0.000
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 RESULTS AND DISCUSSIONS
The first objective of the study was to assess financial performance of SACCOs.
Average total Profit trend Analysis. Average total asset trend Analysis
40
34.69 6.56
7
35

Average Total asset

Average total profit for the period

6
30

In 100000 ETB
25 21.89 5 4.23
16.67 3.08
13.91 15.54
20 4
2.19 2.59
(in 1000ETB)

15 3
10 2
5 1
0 0
1
2012 20132 3
2014 4
2015 5
2016 12012 2013
2 2014
3 2015
4 5 2016
year years

Average members saving trend Analysis Average loan disbursed trend Analysis
3.5 3.15
3 2.559 5 4.61
2.5 2.01 Average amount of loan 4
Average Total members saving

2.88
In 100000 ETB

2 1.608 in (100000ETB)
3
1.242 1.61 1.82
disbursed

1.5
2 1.51
1
1
0
0.5 1 2 3 4 5
2012 2013 2014 2015 2016
2012 2013 2014 2015 2016
0
year 10
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1 2
years
3 4 5

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 Average Rate of Return on Asset /Operating Efficiency
Trends Analysis.
7 6.34 5.99
6 5.39 5.16 5.28
5
Financial Performance/
Rate of return on asset

4
3
2
1
0 2012
1 2013
2 2014
3 2015
4 2016
5

The finding implies that SACCOs are operationally inefficient. This

further translated into the quality of assets possessed SACCOs in
generating profit was low.
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Determinants of financial performance.
Variables Average
total %

MEAN
NO of
Responses

items
Inference

Competition OMFI 12 68.9disagre 2.28 SACCOs faced low competition

Internal-politics 13 63.23 agree 3.52 SACCOs had high internal Politics.
Saving culture 13 66.5 agree 3.61 SACCOs had good saving culture
Liquidity Mgt 12 71.0 agree 3.83 SACCOs had strong liquidity mgt
Operating cost 12 67.7 agree 3.71 SACCOs incurred high OC
Financial reporting 12 74.2disagre 2.32 SACCOs had weak FR practice.
Correlation Analysis-Results
 The result shows that financial performance was negatively correlated with
Competition from OMFI with weak correlation coefficient of -0.254, Sig. (2-
tailed), 0.004)).
With internal politics, negative and moderate.(r= -0.320 , (Sig. 0.000)).
With saving culture, positive and moderate.(r= 0.354 , (Sig. 0.000)).
With Liquidity management, positive and weak,(r= 0.213 , (Sig. 0.016)).
With Operating cost , negative and weak,(r= -0.219 , (Sig. 0.013)).
With Financial reporting , positive and moderate,(r= 0.301, (Sig. 0.001)).
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Regression Analysis Result – competition from Omo MFI and financial performance.

After testing the normality, the data had linear and non-linear components
hence the option is to carry out quadratic regression.
Model R2 F Sig
1.Linear 0.064 8.675 0.004
FP= 14.558 -6.41CT+ 1.067CT2 2.Quadratic 0.345 32.849 0.000

Model B SE T Sig
1 (Constant) 7.143 0.352 20.297 0.000
Competition from OMF -0.429 0.146 -0.254 0.004
2 (Constant) 14.558 1.057 13.532 0.000
Competition from OMFI -6.412 0.828 -7.746 0.000
Competition from OMFI squared 1.067 0.146 7.308 0.000
a. Dependent Variable: Financial performance

This implies that null hypothesis is failed to be accepted

alternative hypothesis failed to rejected
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The non-linear model is supported by scatter plot diagram.

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  Internal politics and financial Model R2 F Sig
performance 1.Linear 0.102 14.361 0.000
FP= 11.257-2.923IP+ 0.385IP2 2.Quadratic 0.188 14.445 0.000

(B-linear=-2.923,T-Statistic=-4.163,(P=0.000))
Figure -scatter plot Internal politics and Financial performance.

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Saving culture and Financial Model R2 F Sig
Linear 0.125 18.082 0.000
performance Quadratic 0.203 15.932 0.000
FP= 2.459+2.665SC -0.342SC2 , (B=2.665, T-statistic=4.110, (p-value=0.000))
Figure -scatter plot Saving culture and Financial performance.

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 Liquidity Management and Financial Model R2 F Sig.
1.Linear 0.045 5.974 0.016
performance
FP= 2.767+2.240LM-0.319LM2 2.Quadratic 0.131 9.428 0.000

(B1=2.240,T-statictic =3.868,(P=0.000))
Figure -scatter plot Liquidity Management and Financial performance .

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Operating costs and Financial Model R2 F Sig
performance 1.Linear 0.048 6.343 0.013
FP= 4.915 -3.946OC+ 0.623OC2 2.Quadratic 0.350 33.637 0.000

(B-1inear= -3.946,T-statictic =-7.990,(P=0.000))

Figure -scatter plot of Operating costs and Financial Performance.

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 Model R2 F Sig.
 Financial Reporting and financial performance
1.Linear 0.090 12.516 0.001
2.Quadratic 0.222 17.835 0.000
FP= -0.908+5.174FR-0.851FR2
(B-linear=5.174,T-statistic =5.173,(P=0.000))
Figure -scatter plot Financial Reporting and Financial performance.

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Multiple regression Model R2 F Sig
1.Linear 0.472 18.012 0.000
2.Non-linear 0.736 26.729 0.000
Model Summary and Parameter Estimate
Model B SE T Sig.
1 (Constant) 5.601 0.647 8.654 0.000
Competition from Omo MFI -0.445 0.120 -3.698 0.000
Internal Politics -0.404 0.094 -4.299 0.000
Saving Culture 0.621 0.089 7.000 0.000
Liquidity management 0.071 0.078 0.912 0.363
Operating Cost -0.170 0.073 -2.330 0.021
Financial Reporting 0.498 0.159 3.140 0.002
Constant -0.461 1.662 -0.278 0.782
2
Competition from Omo MFI -0.795 0.159 -4.997 0.000
Internal Politics -0.142 0.471 -0.301 0.764
Saving Culture 1.383 0.584 2.369 0.019
Liquidity management 0.834 0.504 1.655 0.101
Operating Cost -1.441 0.404 -3.569 0.001
Financial Reporting 4.741 0.769 6.163 0.000
Competition from OMFI squared 0.691 0.119 5.811 0.000
Internal politics Squared -0.012 0.071 -0.167 0.868
Saving culture squared -0.151 0.091 -1.661 0.099
Liquidity Management Squared -0.139 0.080 -1.730 0.086
Operating Cost squared 0.221 0.066 3.361 0.001
Financial Reporting squared. -0.820 0.142 -5.788 0.000
a. Dependent Variable: Financial performance

FP= -0.461-0.795CT +0.691CT 2 -0.142IP -0.012IP2 + 1.383SC -0.151SC2+0.834LM -

0.139LM 2-1.441OC + 0.221OC 2 +4.741FR -0.8201FR2 17
 Conclusions and Recommendations.
Competition and Financial performance.
The study concluded that holding other factors constant
competition had negative and significant relationship with financial
performance.
Therefore, the study recommends that , SACCOs should enhance
managing competition, incorporate members views and train all
members.
Internal politics and financial performance.
The study concluded that there exist a negative and significant
relationship between internal politics and financial performance of
SACCOs.
Thus, the study recommends that SACCOs place measures to
safeguard the independence and effectiveness of all members,
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Saving culture and financial performance.
The study concluded that there exist a positive and significant
relationship between saving culture and financial performance of
SACCOs.
Therefore the study recommends that SACCO should set targets
to the members on the amounts to be saved, work to improve
household income and wisely invest in the next best alternatives.
Liquidity management and financial performance.
The study concluded that by keeping other factors constants liquidity
management had positive and significant relationship with financial
performance of the SACCOs.
Therefore the study recommends that SACCOs should enhance
the level of liquidity and Reduce time taken for loan processing
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Operating cost and financial performance.
The study concluded that there exist negative and significant
relationship between operating cost and financial performance of
SACCOs.
Consequently, the study recommends that management should
ensure that SACCOs have effective strategic plans and policies
governing the running of the SACCOs.
Financial reporting and financial performance.
The study concluded that holding Other factors constant there exist
a positive significant relationship between financial reporting and
financial performance of SACCOs.
Thus, the study recommends SACCOs should identify relevant
internal and external user, make easier to the members to know
their financial position and their obligations periodically and
promotion office should deliver updated standard financial
reporting system.

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 Thank You !!
~~~~~~~~

08:11:49 AM
ABEJE ABERA, WSU