Liquidity Regulation Compliance and Financial Performance of Deposit-Taking Savings and Credit Cooperative Societies

Abstract

Liquidity regulation is critical for ensuring the financial stability of Deposit-Taking Savings and Credit Cooperative Societies (DT SACCOs) in Kenya, which play a pivotal role in financial inclusion and economic empowerment. This article examines the effect of liquidity regulation on the financial performance of DT SACCOs, emphasizing compliance with the SACCO Societies Act of 2008. The study adopted a descriptive research design and analyzed secondary panel data from audited financial statements of 175 DT SACCOs over five years. Key metrics included cash ratio, loan-to-deposit ratio, and return on assets (ROA). The findings revealed that adherence to liquidity regulation significantly enhances financial performance, as indicated by a positive relationship between liquidity levels and profitability. However, challenges such as governance gaps and resource constraints hinder effective compliance. The study concludes that liquidity regulation improves operational efficiency, safeguards member deposits, and promotes financial stability. It recommends that DT SACCOs prioritize maintaining liquidity above the 15% threshold, adopt robust liquidity management strategies, and leverage regular audits to identify risks. These measures will not only strengthen financial performance but also enhance resilience to economic fluctuations. The findings contribute to understanding the critical balance between regulatory compliance and financial sustainability in the cooperative sector.

Keywords: Financial Performance, Deposit Taking SACCOs, Liquidity Regulation