Capital Regulation Compliance on Financial Performance of Deposit-Taking Savings and Credit Cooperative Societies. A Panel Analysis Approach

Abstract

Capital regulation is a critical component of prudential financial oversight, ensuring the stability and sustainability of Deposit-Taking Savings and Credit Cooperative Societies (DT SACCOs). This study examined the effect of capital regulation on the financial performance of DT SACCOs in Kenya using a panel data approach. The study utilized secondary data from 175 DT SACCOs for the period 2018-2022, and employed panel data analysis method specifically using fixed effects model. The findings revealed that capital regulation has a significant positive effect on financial performance, measured by return on assets (ROA) and return on equity (ROE). The study also established that SACCO size moderates the relationship between capital regulation and financial performance, with larger SACCOs benefiting more from stringent capital requirements. The study recommended strengthening capital adequacy compliance through enhanced governance structures and financial management practices to ensure SACCOs maintain sustainable growth while adhering to regulatory requirements.

Keywords: Liquidity Regulation, Financial Performance, Deposit Taking SACCOs