EFFECT OF GUARANTOR’S QUALITIES ON RECOVERY OF NONPERFORMING LOANS AMONG SACCOS IN NAKURU COUNTY

Abstract

SACCOS play a crucial role in providing financial services to the marginalized poor, although they face several challenges. One significant challenge is the high rate of loan default. In Nakuru County, SACCOS experiences a higher default rate compared to microfinance and commercial banks. Therefore, this study aimed to evaluate how the qualities of guarantors affect the recovery of non-performing loans among SACCOS in Nakuru County. Specifically, the study aimed to analyze the impact of guarantor deposit, the type of guarantor, the duration of guarantor membership, and the number of guarantors on loan recovery. The study was guided by theories of information asymmetry, adverse selection, and moral hazard. The study utilized a descriptive design, focusing on 22 SACCOs within Nakuru County. The unit of analysis was 22 SACCOs in Nakuru County while the unit of observation was 56 credit and recovery officers. Given the manageable size of the target population, the researcher opted for a census approach, including all 56 employees in the study. The study collected data using questionnaires. The study conducted a pilot study in Kericho where 6 questionnaires were issued. Cronbach's alpha coefficient was employed to assess research dependability. Both descriptive and inferential statistics were utilized to analyze quantitative data. Based on the findings, the study concluded that there is a positive and significant correlation between guarantor deposits and the recovery of non-performing loans among SACCOS in Nakuru County (r=0.603, p=0.000). Additionally, the study found a positive correlation between the type of guarantor and the recovery of non-performing loans among SACCOS in Nakuru County (r=0.753, p=0.000). Furthermore, the study concluded that there is a positive and statistically significant correlation between duration of guarantor membership and the recovery of non-performing loans among SACCOS in Nakuru County (r=0.690, p=0.012). Finally the study concluded that there is a statistically significant correlation between the number of guarantors and the recovery of non-performing loans among SACCOS in Nakuru County (r=0.729, p=0.014). The study recommended that SACCOS should adjust the required deposit amounts to better align with the borrower’s loan size. The study also recommended that new policies be formulated to classify guarantors more distinctly. SACCOS could benefit from establishing clear criteria for differentiating between Class A and Class B guarantors. It was recommended that this classification ensure higher-risk loans were matched with guarantors better equipped to guarantee repayment. Additionally, practical interventions were recommended to increase loan recovery. These included promoting long-term guarantor memberships and requiring multiple guarantors for higher-risk loans.