SCHOOL OF GRADUATE STUDY

DEPARTMENT OF ACCOUNTING AND FINANCE:

A STUDY ON DETERMINANTS OF

FINANCIAL PERFORMANCE FOR SAVING AND CREDIT CO-OPERATIVES WITH REFERENCE TO

SODO ZURIA WOREDA, WOLAIATA ZONE.

Proposal

Submitted By:

Abeje Abera Dana

In Partial Fulfillment of the Requirements

For the Degree of

Masters

Advisor: Dr RAHAMA MOHAN.

Feb. 2017

W/Sodo
Abstract.

This study was conducted to explore the determinants of financial performance of SACCOs in the
sodo zuriya woreda. In the study area 53.125% of SACCOs legally registered are not functioning as
per economic missions of organization. The determinants studied were competition from Omo
microfinance institution, internal politics, saving culture, liquidity management, operating costs, and
financial reporting. This study was adopted a descriptive survey design. The target populations of the
study were SACCOs in SZW. The sampling frame of this study was derived from Sodo Zuriya
Woreda cooperative promotion and marketing office which license and regulate SACCOs in the
woreda. Stratified and simple random sampling was used to select the sample. A Likert scaled
questionnaires were used to collect primary information while a secondary data collection sheet was
used collect secondary data (financial information) regarding SACCO performance. Data was sorted,
coded and inputted into the statistical package for social sciences (SPSS) version 20.0 for production
of graphs, tables, descriptive statistics and inferential statistics. A multiple regression model was used
to test the significance of the influence of the independent variables on the dependent variable. The
results of study indicates that the relationship between competition, internal politics and operating cost
was negative and significantly affects financial performance of SACCOs while saving culture,
liquidity management and financial reporting was positively and significantly affects financial
performance of SACCO. 72.9% of variance financial performance of SACCO in the study area was
explained by variances on linear and non-linear components competition from Omo MFI, internal
politics, saving culture, operating cost and financial reporting. The study recommends that SACCO
should; prioritize interest of members when facing competition in the market, have effective policies
and strategies to handle internal politics, update minimum monthly and annual saving target of
members and organizations on timely basis, minimize time taken for loan processing, set effective
policy which could used in reducing operating cost and they should follow standard internal and
external reporting of Cooperatives.

I
ACKNOWLEDGEMENTS

The completion of this study is a compliment to the dedication of many people. I would like to
acknowledge the assistance, love, support, and devotion I received from countless sources.

First and foremost, for providing me with the unwavering support to continue my studies, I would like
to thank my Mam. Throughout my life she has both been encouraging of all of my deeds. Without
Her support and faith, this process would never have been completed. Thank you.

Many, many special thanks go to my advisor prof. Rahama Mohan. I cannot describe the gratitude and
admiration I feel for his constant support for the completion of my study. He will always remain in my
heart for his steady efforts to cheer me up and keep me focused. He has always been able to be reached
when I needed him. I wish we would always remain to be colleagues and acquaintances in my future
career.

My thanks also go to my colleague post-graduate students Zelalem B, Hiwot M, and Adimasu, whom I
had the good fortune to know every schedule of department regarding class and this study as well. I
want to recognize their solidarity and friendship.

Above all, I would like to extend heartfelt gratitude and glory for almighty Jesus, without him nothing
of my journeys was impossible.

II
 CHAPTER ONE
1. INTRODUCTION
1.1 Background
According to Mckernan and Chen (2005), cited in Ofei (2001), finance is the backbone of any
business enterprise. For country's economic development, financial institutions play a vital role in the
world. Formation of financial institutions can be formal, semiformal and informal institutions. Micro
finances are one of the formal financial institutions that provide financial services to the poor and
rural areas with high interest rate to compensate for the risk. World Bank’s strategy seeks to improve
the demand and supply conditions for expanding access of the rural poor to a suitable “diversity of
products and institutions that fill the financial needs of low-income rural clients in income generation
and reduction of vulnerability” (World Bank, 2012).

To this effect, the delivery of microfinance service to the poor in Ethiopia is one of the main effective
instruments of insuring food security, reducing poverty and increasing employment in both urban and
rural areas. This could only be realized by developing capable and suitable microfinance institutions
(Wolday, 2004). Saving and credit cooperatives here after, SACCOs can help providing financial
services to the poor and rural societies in this regard.
However, society's access to financial services depends on many variables such as financial
development of the country, income level of the individuals, geographic location and development of
the country accompanied by other variables. That means even though financial service is vital to the
society, it is not equally available to all members of society. Hence, Savings and Credit Cooperatives
(SACCOs) are established based on this basis to serve the interest of economically neglected segment
of society and they are the main providers of financial services for low income, rural and urban
societies who are overlooked by other formal financial institutions (banks) and markets in many
countries.
According to Munyiri (2006) cited in Ofei (2001), Savings and Credit Co-operative Societies
(SACCOs), which are started locally, are more attractive to customers thus deeply entrenching
themselves in the financial sectors of many countries. SACCOs are able to advance loans at interest
rates lower than those charged by other financial providers. In addition, SACCOs have the ability and
opportunity to reach clients in areas that are unattractive to banks such as rural or poor areas.

1.1.1 An overview of SACCOs in Ethiopia.

Establishment of SACCOs in Ethiopia started in the mid-1960 and the first one was pioneered by the
employees of Ethiopian Airlines in 1964. From 1964-1973, there were 28 SACCOs and these
societies formed their own national apex body known as Ethiopia Thrift and Cooperative Societies
Ltd (ENTACCS). At that time the apex had 28 SACCO with 6,247 members and savings amounting
to USD 627,752 and was also a member of the Africa confederation of Cooperative Savings and
Credit Association (ACCOSCA), Kifile T. 2012).

The SACCO which was under the National Bank of Ethiopia during the Dergue regime unlike the
other type of cooperative were not very much affected but continued to mushroom except the national
apex ENTACCS which was abolished. By 1990/91 when the Dergue regime was abolished there
were 495 SACCO in the country with the total membership of 119,799 and total savings amounting
to 79 million birr, assets totaling of 102 million birr, and outstanding loans of 80 million birr. After
down fall of socialist government various supports were made to cooperatives, due to this fact from
1991- 2014 the number, membership and capitals of cooperatives have been increased to 14453, 1.7
million and 5.1 million birr respectively. (kifile T, 2012)

As of June 2016, In Ethiopia 78 thousand primary cooperative with 37.7 billion ETB exist from
which largest share next to multi-purpose cooperatives is owned by SACCOs. There were 18
thousand SACCOs found and they collected deposit amounted 11.2 billion from the members. The
growth rate of this sector was 22.9 % and 100% in membership and deposit respectively however
from 2014-2016.The average the individual deposit in rural area was 902 ETB where as 8000 ETB in
urban area (FCA, 2016).

1.1.2. over views of SACCOs in the Study area

Wolaita Zone has no unique evolution of cooperatives apart from evolution of cooperatives in
Ethiopia. For the same period wolaita Zone cooperative promotion and marketing department
reported that there were 1475 different kind of cooperatives operating under this Zone of SNNPR
with aggregate Membership size of 136997 (98453 male and 38544 female) and capital amounting to
77.9 million birr. Out of these various types of primary cooperatives, 388(26.3%) are primary
SACCOs with membership of 43787 and capital of 24.9 million birr.

These SACCOs mobilized the total deposit amounting 81.56 million. Currently, SACCOs constituting
the second most common type of coops (next to multipurpose cooperatives) in Wolaita Zone in terms
of number, membership and capital( Wolaita Zone cooperative promotion and marketing department
Annual report,2016).

According to facts obtained from Sodo Zuria woreda cooperative promotion and marketing office as
of June 30, 2016, there are 32 saving and credit cooperative with 4162 individual members in the
woreda. For the same period the total average paid up capital of these SACCOs account 78,674ETB
which is insignificant as compared to the number of members. The total members of SACCOs are
4162 and average share capital per member is 67ETB only and their average total saving of SACCO
amounted 0.2m , the average saving is per member totaled 1538ETB (SZWCPMO Annual report,
216). These were very low when compared to average individual saving in Omo micro finance and
wisdom clients 3000ETB. In addition to these, out of 32 SACCOs when 7(21.8%) ceased providing
both saving and credit service to their members, 17(53.125%) including aforementioned bankrupt
SACCOs failed satisfy loan demand by members. The total member of cooperatives to the ratio of
potential member to existing members is 3.6 %( SZWHABP report, 2016).

This is the primary reason to conduct this study to determine what makes SACCOs unsuccessful to
meet their financial goals

1.2. Statement of the problem

Ethiopia has low geographic and demographic bank branches and microfinance is only reaching a
small fraction of the estimated demand of the poor for financial services Littlefield and Rosenberg,
(2004 )cited by Eoin W, (2005) . Aura and Mwangi (2013) asserts that SACCOs were seen as
vehicles for resource mobilization and gateway to economic prosperity for families of marginalized.
According to Mwangi and Wanjau (2012), SACCOs play a critical role in entrepreneurship
development as they mobilize significant volumes of personal savings and channel them into small
loans for productive purposes at the community level. (Muluneh, 2012), assert SACCOs play critical
role in economy but their capital base is very small to support the lending programs and ensure
sustainability. SACCOs has been organized and started operation in Sodo Zuriya since 1977s,
however this sector has not been able to impact positively on the lives of people.
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In light of this, the existence and thriving of SACCOS in woreda have not been able to perform well as
compared to the other typical financial institutions like Omo micro finance. They were formed to serve
the special needs of its members, but this has not been adequately achieved ( SZW, HABP report,
2016). SACCOs in sodo zuria woreda are operating in unique environment in that, other micro finance
institutions in the area are managed by paid employees who professional and being acquainted with
knowledge of daily operations. They also compete for the same savings with the MFIs who happen to
be the employers of the SACCO members and committees. Government gave the right of managing
public revenues to Omo microfinance institutions while legally registered SACCOs which are working
to replace government role exist in the same kebele. This is most probable for government hesitate on
prudent finance management capacity of SACCOs and those sickness of SACCOs makes the
researcher to think as there something that hinder their performance and creates the question, why
53.125% of SACCOs in the area found in financial distress while micro finance institutions continue
to prosper and boom in an environment and economy?

Scholars Hakelius (2006), Kiaritha (2009), Unal, Guclusoy& Franquesa (2009), Bhuyan (2007),
Nyoro and Ngugi (2007), Chambo (2009), Pollet (2009) have conducted studies on performance
within the SACCO movements.

They identified the factors namely; members’ royalty and active participation; financial,
organizational, educational factors, membership and legislative support; members satisfaction and
members participation; economic factors, management committee and staff members; voice and
effective representation of SACCO’s respectively as key issues contributor to the performance and
survival of SACCOs. From the reviewed empirical literature, it is evident that factors contributing to
success or failure of co-operatives are many-sided and depends on the operating environment of the
specific SACCO. Moreover, the studies evaluated just a handful factors on gross performance. It is
difficult to understand a factors affecting performance of SACCOs without understanding what affect
their financial performance. Other research conducted was determinants of SACCOs’ Performance by
Tilahun G. in Hula woreda in 2013. The major finding were membership was very low, small portion
members diversified their income, significant amount of loan was not repaid, member ship growth
trend was declined, all financial record keepings were adequately maintained, deposit and share
capital were increasing.

These financial performance indicators of SACCOs are considered not adequate because asset quality,
adequacy of capital, liquidity, etc are available. In addition to Kifle (2012) conducted research on
Management of Savings and Credit Cooperatives from the Perspective of Outreach and Sustainability
and he concluded SACCOs were able to mobilize huge financial resources and to provide credit and
savings services to a large mass base at a standard compared to that of other formal financial
institutions. However there is no evidence that reveals on what factors that a huge financial resource
depends.

Therefore, it is important to know what factors does affect financial performance of SACCOs.
However in study area, such study has not been undertaken yet, though SACCOs are suffering from
financial pain. This study therefore seeks to fill this research gap by investigating the influence of a
competition from financial institutions, internal politics, and members saving cultures, liquidity
management, operating cost and financial reporting on the financial performance of SACCOs in the
study areas.

1.3. Objectives of the study.

1.3.1 General Objective
The overall objective of this study was to determine determinants of financial performance of
SACCOs in soddo zuria woreda. In pursuing this general objective, the following specific objectives
were addressed.

1.3.2 Specific Objectives

The specific objectives pursue by the study are

To assess financial performances 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 relationships 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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1.4. Hypothesis of the study

In addressing the aforementioned objectives of the study the following null hypotheses will be tested.
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 saving and
credit cooperatives.
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.

1.5. Significance of the study

Although Ethiopia is among economically fast growing countries, the country has high levels of
unemployment, low per-capita income and still under poverty. Ethiopia has not yet been
industrialized, it relies on small scale farming practices and all this category of people relies on rural
SACCOs and microfinance institution to finance their activities (IFAD, 2012).

The probabilities of SACCOs to succeed the plan of transformation lied by government on ADLI are
quite high if they realize some of the challenges that affect their performance (ATA, 2014). Therefore,
the findings of this study can be of significant to the management of SACCOs. They will be able to
appreciate how performance of their SACCOs is influenced by the study variables. Based on the it the
management can be able to understand the strategies to be designed so as to improve the performance
of the respective SACCOs. To the SACCO members who also formed part of the sampled
respondents, they can be able to understand the factors affecting performance of their SACCOs
(stock/share) and work together with the committees to achieve common goals.

This will ensure that they become more informed especially in their contributions on the directions
they would desire the management to take in improving profitability and other performance indicators.

In addition for academicians and other researchers, it will drop light on Sacco’s financial performance
and might be used as a source of other researches and reference for related studies. For cooperative
promoters, it might be used as a reference in developing plan related with strengthening SACCOs and
how to appreciate their expansion considering their current service to rural poor.

1.6 Scope of the Study

This study identified the factors determining the financial performance of SACCOs in the sodo zuria
woreda. The sample was taken from SACCOs located in woreda. The period for conducting the
research was from Dec 2016 to May 2017. The co-operative studied are savings and credit cooperative
societies only. Moreover, the study will not cover other forms of co-operatives. The scope is also
limited to the stated objectives of the study which spells out the variables to be studied.

1.7 Limitations of the Study

The study had the following limitations; it focused on SACCOs in the woreda and also considered six
variables as the determinants of the financial performance SACCOs whereas there could be other
factors. Also, the study was not able to carry out a census of SACCO members, instead sampling was
used and due to this limitation care was taken to ensure sampled respondents represent the population.
Those filling the study also feared that the findings of the study could be availed to their competitors;
however, the researcher assured them that the data was used for academic purposes only and utmost
confidentiality was maintained.

1.8 Organization of the Study

The research report was organized in five chapters. They are; chapter one featuring background of the
study, statement of the problem, objectives of the study, assumptions of the study ,significance of the
study, limitations of the study and delimitation of the study. Chapter two captured study of literature
review against background of key study variables, theoretical framework and conceptual framework.
Chapter three captures research methodology used in the study including research design, target
population, sample size and sampling procedures, data collection procedures, data analysis technique
and ethical considerations. Chapter four deal with data analysis, discussions, presentation, and
interpretation. finally Chapter five contains summary of findings, discussions, conclusion and
recommendations.

CHAPTER TWO
2. LITRETURE REVIEW
2.1 Introduction.
This chapter discusses theories relevant to the study. The concepts of the study were developed under
the conceptual framework section and finally reviews of empirical studies that have previously been
conducted on the area of financial performance of SACCOs were addressed.

2.1.1. Definition and concepts of Cooperatives

2.1.1.1. Definitions of SACCOs
Cooperatives are numerous and varied. The International Cooperatives Alliance (ICA) defines a
cooperative as “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 enterprise”. This suggests that cooperatives are, first and foremost, voluntary business
associations formed by people of limited means through contribution of share capital that forms the
basis of sharing out the profits that accrue from the business. Cooperative societies may, according to
their nature, be established at different levels from primary up to the federal level (Ethiopian Federal
Negarit Gazeta cooperative societies Proclamation No. 147/1998). Cooperative societies at primary
level are with individual persons as members, while cooperative unions are formed at the secondary
level with cooperative societies as the members. Thus, in the latter case, cooperative societies in the
same sector within a specific geographical region could join together to form a cooperative union for
purposes of mobilizing capital to invest in a bigger business venture that is beyond the reach of a
single cooperative society. This study was conducted only on those primary saving and credit
cooperatives in SZW.

2.1.1.2. Concepts of SACCOs.

SACCOs are user-owned financial institutions that offer both savings and credit services to their
members. Members of these financial institutions can be both net savers and net borrowers.
Depending on a country’s legal framework, SACCOs may be authorized to mobilize member savings
and non-members savings or member savings only. SACCO Society is owned, managed, controlled
by members.

They have the right to decide on its issues, members have the right to benefit from its service. It is
formed initially for the poorer to provide financial services such as safe place for savings and
providing easy accessible loans to members. In SACCO Society once overhead and other expenses are
paid, reserve for cushion against any loss, and for expansion of services set aside, the remaining
income from loans is returned back to members in the form of dividend on savings, share or both
(Getachew, 2006). In developing SACCOS, working funds are comprised mostly of member shares; in
mature SACCOs, working funds are mainly deposits. SACCOs’ make loans to members, emphasizing
primarily the character and ability to repay (Henama, 2012).

2.2. Role of SACCOs.

Access to finance offered by SACCOs influence growth of youth entrepreneurship. For traders the
main problem is a shortage of working capital and SACCOs could be very useful; especially SACCO
of traders. Through SACCOs, members can get micro and macro credit to create/start small
businesses. The SACCOs also provide loans to all members without gender discrimination (Dessalew,
2014). The two fundamental function of a SACCO Society are financial intermediation and
investment. That is bringing savers and borrowers together in a system that enables them to pool their
money as savings and shares, and after capturing funds transforming into loans by calculating all of
the costs of doing this business to make profitable or useful to both parties (the SACCO Society and
its members), Getachew, 2006). Synchronized

2.3. Source of finance in SACCO

SACCO Societies as financial institutions can raise their funds internally (self-financing) and
externally (outside financing). However, SACCO Societies are basically advised to finance
themselves internally from members Savings, share mobilization and retained earnings, to avoid
interference of decision on SACCO issue by fund owners, to be self secured and sustainable in the
future (Getachew, 2006).

2.3 Financial Performances and its Measures.

Operating and financial ratios have long been used as tools for determining the condition and the
performance of a firm (Ogilo, 2012).

10

Parast and Fini (2010) indicate that in the pursuit of better operational performance and profitability,
organizations are looking for strategies to improve their operational performance and boost their
profitability. According to Herrmann (2008) when analyzing a firm’s profitability, we are concerned
with evaluating a firm’s earnings with respect to a given level of sales / assets / owners’ investment or
share value. In doing so, the common profitability measures include: Common size income statements;
Return on total assets (ROA); Return on equity (ROE); Earnings per share (EPS); Price/Earning (P/E)
ratio. Under the common-size income statement, we express every item on the income statement as a
% of sales, which is gross margin; operating margin; and profit margin, whereby: Gross margin - % of
each sales dollar remaining after the firm has paid the direct cost of goods sold (COGS); Operating
margin - % of each sales dollar remaining after the firm has paid all expenses (excluding financing
expenses and taxes); Profit margin - % of each sales dollar remaining after the firm has paid all
expenses (including interest and taxes).

A ratio is the relationship between two accounting items expressed mathematically (Jain and Narang,
2009). There are different expressions of ratios. The major ones include: profitability; liquidity and
gearing. Although financial ratio methodologies are essentially univariate in nature with emphasis is
placed on single signals of impending problems, a study on financial performance and analysis using
Altiman Z-Score (multivariant) and its effect on stock price in the banking sector in Indonesian Stock
exchange by (Prihatni & Zakaria, 2011) found all banks analyzed as having financial difficulties with
none scoring more than 2.60. The study explored whether banks have financial difficulties and its
effect to companies’ stock price in Indonesia. Data was gathered from banking sector during year
2004-2008 listed in Indonesian Stock Exchange. The results showed that all banks used in this sample
are categorized in financial difficulties but in fact, those banks are still running their operation
normally.

Rate of return on total assets (RROA) takes into consideration the return on investment (ROI) and
indicates the effectiveness in generating profits with its available assets, thus the higher the better(Ibid,
2008). A ratio can be used as a measure for evaluating the financial position and performance of a
concern, because the absolute accounting data cannot provide meaningful understanding and
interpretation (Prihatni & Zakaria, 2011).

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A savings and credit society also known as a credit union is a cooperative financial institution that is
owned and controlled by its members and operated for the purposes of promoting thrift, providing
credit at low interest rates and providing other financial services to its members.

World over, systems in these organizations vary from slightly to significantly in terms of total system
assets, average institutions' asset price and regulatory control. This ranges from volunteer operations
with a few members' organizations to the institutions with several billion asset value.

Due to this shortcoming of this multiple discriminant analysis and strong ability of ROA to measure
firm’s profitability the researcher in this study performed financial analysis to determine sector
performance, variable influence and financial stability using the RROA (rate of return on asset)

2.4 Theoretical Review

The theoretical framework must demonstrate an understanding of theories and concepts that are
relevant to the topic of the research and that will relate to the broader fields of knowledge in the study
you are taking. The selection of a theory should depend on its appropriateness, ease of application, and
explanatory power. The theoretical framework connects the researcher to existing knowledge
(Kennedy, 2007).

2.4.1 Constraints induced theory

This theory was advanced by silber in 1983 and cited severally by Mukur (2014). This theory is based
on assumptions that the main reason for modernization is to increase the firms’ profitability. Muker
(2014) noted though there are some external and environmental obstacles which distract the realization
of profit maximization. These barriers tend undermine the efficiency of financial institutions. This
theory is relevant to study the dependent variable (financial performance).

2.4.2 Institutional Theory

The basic concepts and premises of the institutional theory approach provide useful guidelines for
analyzing organization-environment relationships with an emphasis on the social rules, expectations,
norms, and values as the sources of pressure on organizations. This theory is built on the concept of
legitimacy rather than efficiency or effectiveness as the primary organizational goal (Doug and Scott,
2004).

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The environment is conceptualized as the organizational field, represented by institutions that may
include regulatory structures, governmental agencies, courts, professionals, professional norms,
interest groups, public opinion, laws, rules, and social values. Institutional theory assumes that an
organization conforms to its environment. the organization being dependent on external resources and
the organization‘s ability to adapt to or even change its environment (Ibid).

This theory is relevant to the study as it explains how institutional environment; that is the desire to
explore organization cultures defines the financial management practices of an organization and how
such practices affects financial performance of a company. This theory addresses two independent
variables of competition and internal politics.

2.4.3 Life-Cycle Theory of Savings

According to the life-cycle model of savings, people save when young to finance consumption during
retirement. In theory, in the absence of a legacy motive, the dissaving of the old should offset the
saving of the young, so that in a stationary population (with a stable age distribution and no population
growth) there is no aggregate saving. In addition, Fry and Mason (1982) and Mason (1988) point out
that the presence of children increases the consumption requirements of young families, so that high
rates of youth dependency can depress saving and lower the impact of economic growth on savings
rates.
Proponents of this theory argue that SACCOs are an important part of the solution to poor people’s
problems with dead capital. Savings accounts in regulated financial institutions are legally recognized
assets and often the first that poor families acquire. Their bank accounts are fungible assets (live
capital), and since banks are legally accountable for their savers deposits the deposits can be used as
collateral for loans and mortgages. People choose to save excess liquidity for future use and this
excess liquidity can be mobilized by financial institutions serving low income people.

The theory focuses on voluntary and compulsory savings mobilized from the public will be used to
address third independent variable: saving culture. If savers need excess liquidity of their deposit
SACCOs need to invest in the most liquid investment this will bring the lowest rerun to pay interest on
their deposit. The return only trade-off interest expense.

14

The hypothesis assumes that since SACCOs pay interest on members deposit and collect the lowest
interest on the margin left back shall used for operating cost. Thus, nothing left back to SACCOs to
raise their profit and its effect to financial performance is zero.

2.4.4 Cash Management theory.

In Gibbs approach contends that, the determination of the amount of buffer money to hold is seen as
an investment decision. Gibbs approach emphasizes holding costs, costs of short and costs of long-
term borrowing and the costs of investment in marketable securities (Erkki, 2004). As Huseyin
(2011) asserts, managers have an incentive to hoard cash to increase the amount of assets under their
control and to gain discretionary power over the firm investment decision, (as cited by Jensen, 1986).
Having cash available to invest, the manager does not need to raise external funds and to provide
capital markets detailed information about the firm’s investment projects (Huseyin, 2011). Hence,
managers could undertake investments that have a negative impact on shareholders wealth. This is
critical in management of liquidity in the firm and ensuring there is a balance between meeting the
current obligation to mitigate liquidity short fall and investing in the interest of shareholders wealth
maximization (Huseyin, 2011).
This theory addresses the fourth independent variable liquidity management which indicates that there
should be optimal liquidity which results in maximum return on members’ investment.

2.4.5 Theory of Internal Controls

The Rutteman Report (1994) in UK defined internal control as the whole system of controls, financial
and otherwise, established in order to provide reasonable assurance of Effective and efficient
operations; Internal financial control and Compliance with laws and regulations. Mostly internal
control is concerned with authority management tools that help to control processes and achieve
enterprise goals (Cobia D. (1989).

Buck and Breuker (2008) declare internal control as a mistake detecting and correcting system;
although Mackevičius (2001) state that internal control is defined as a summation of certain rules,
norms and means, actually such definitions are identical, but internal control must be related to safety,
the rational use of property and the reliability of financial accounting. For this study Rutteman
definition of internal control will be used.

15

The theory is relevant to the study because it outlines the internal control policies, procedures and
rules to be followed in the SACCOs. This theory address the fifth and sixth independent variables on
operating costs which indicates that there should be transparency and guiding policies and controls to
avoid misuse of the cash which may lead to poor financial status of the SACCO.

2.5 Empirical Literature Review

This section reviews studies previously done on determinants of performance. It is a comprehensive
survey of previous inquiries related to the research questions. Miller and Yang (2008) states that
through the use of a systematic approach to previous scholarly work, literature review allows a
researcher to place his research work into an intellectual and historical context, that is, it enables the
researcher declare why his research matters. Therefore the previous works will be presented in line
with its relevancy to which variable under investigation.

2.5.1 Competition and Financial Performance.

In today’s society, cooperative financial institutions hold a considerable market share, with the IMF
estimates that across all banking sector assets in developing countries, the market share of cooperative
finance was equivalent to 14 percent in 2004 (Hesse & Cihak, 2007).

Previous research on co-operative finance during crisis indicates that they tended to fare better than
investor owned savings and loan institutions, as they pursue more conservative investment policies
(Henama, 1996; Chaddad and Cook, 2004). Co-operative finance in developing countries tends to
have a supply of funding that is more stable and less responsive to monetary policy and market rates.
Co-operative finance also tends to offer comparatively lower fees than other types of commercial
banks, which not only helps to increase access of the poor to credit, but also reduces the cost of
remittance transfers (Schenk, 2007).

Research from the IMF (Hesse & Cihak, 2007) found that co-operative financial institutions tend to be
more stable in times of crisis, as their investment patterns use the capital of members in ways that best
serve their long term needs and interests. It is therefore thought that their comparative stability, under
both average and extraordinary conditions, can help to mitigate crisis impact for members and
clientele, especially in the short-term.

16

Auka and Mwangi (2013) reported that SACCOs were facing stiff competition as their members were
seeking financial services from commercial banks and other financial service providers in Kenya.
Further investigations revealed that, although SACCO membership and the demand for loans from
SACCOs was reported to have increased, SACCO were facing the problem of low capital base thus
causing SACCO members to seek financial services from other financial service providers ( Njagi,
Kimani &Ngugi, 2012).

Financial institutions have been hesitant to provide credit to co-operatives due to the high risks
associated with lending to them (Ortmann & King, 2007). High risks are due to insufficient equity
capital; the influence problem (caused by democratic voting rights), which prevents the majority
investors from influencing investment decisions; poor financial record-keeping; and high transaction
costs involved in granting small loans (Ibid, 2007). According IMF 2007, SACCOs investment in
risky financial market was less and they are stable under extra-ordinary conditions. It hypothesizes that
although SACCOs face competition which is extra-ordinary event to them their performance will be
stable. Therefore competition does not affect SACCOs financial performance.

2.5.2 Internal Politics and Financial Performance

Akinwunmi(2006) averred that Cooperation represent the spirit of working together to achieve a
common goal. Much as desirable as cooperative societies are in the development of a nation, there are
problems and constraints that have militated against its effective performance of its roles in nation
building. This has made for poor performance, decline and death of some co-operatives. The other
critical element according to Akinwunmi(2006) was leadership. If there is purposeful leadership, if
leaders are transparent, dedicated and truly serving, the co-operative society will succeed. A true
leader does not cut corner, does not inflate contracts so as to receive kickbacks, does not have favorites
among members and does not mismanage the resources.

Mudibo (2005) raised concerns on the caliber of leaders who run SACCOs noting that since these are
voluntary organizations, members can elect anybody they like, who may not necessarily have the skills
to run a SACCO. He suggested that before a member is elected, he should have a certain number of
shares so that he has something to lose if he mismanages the SACCO. Van der Walt’s (2005) study of
co-operative failures in Limpopo province indicated that poor management, lack of training,

17

conflict among members (due mainly to poor service delivery), and lack of funds were important
contributory factors. According to Mumanyi (2014), the Co-operative Societies Act No. 12 of 1997
sought to reduce the strict state supervision of co-operatives so as to support the liberalization of co-
operatives. However, this led to abuse of office by those entrusted which led to cases of corruption
and mismanagement of cooperatives and the splitting of viable co-operatives into smaller inefficient
units. Studies by Makori, Munene and Muturi (2013) and Kilonzo (2010) cited political interference as
a challenge facing SACCOs in Kenya.

Collins G,Ntim I and Kofi As cited by Ofei K.A., (2001), conducted research in to establish the
relationship between impact of corporate board meeting on corporate financial performance for sample
of 169 list corporation 2002 to 2007 in south Africa. Their findings were board meet frequently to
generate higher financial performance. The investigations indicated frequency of meeting and
corporate financial performances were statically significant and positive.

Organizational politics neither inherently good nor bad, but positive political culture improves the
strategic decision making and organizational performance (Simmeries, 1998; McDonagh,
&umbdenstock, 2006). According to Simmeries, 1998; McDonagh, &umbdenstock, 2006) internal
ordinary politics do not affect financial performance of organization. Therefore this research
hypnotizes that there is no relationship between financial performance and internal politics to test this
authors finding.
2.5.3 Savings Culture and Financial Performance
Socially conscious investors can go to Savings and credit schemes and invest whatever amount they
want, and even choose the area where the money will go and what annual return they would like to
earn on the money. Credit Schemes then distributes the investment to the micro lenders that service the
chosen area or project. The money is lent to the impoverished entrepreneurs who use the money to
start or a finance business that enables them to rise up out of poverty. The entrepreneurs repay the loan
with interest, and the original investor has helped raise someone out of poverty and earns a return on
his investment at the same time (Guilford, 2007). According to Guilford (2007) credit facilities enable
impoverished persons to start businesses, rebuild after natural disasters like floods and hurricanes, and
to receive both short- and long-term loans to meet their financial needs and improve their overall
quality of life. 18

The impact of micro lending is changing the economic landscape of the areas where it is most
prevalent. Many institutions that mobilize savings don't pay interest on them, or they pay minimal
interest compared to the interest they realize when they lend these savings out.

According to Gicheru, Migwi and M”Imanyara (2011) in a study which was done in Kenya in the
transport industry, majority of SACCOs were weak in terms of loans granted and capital base. It was
further indicated that some SACCOs had not granted any loans to members as the monthly share
contribution was low due to low patronage. This was attributed to the fact that some SACCOs had
business plans which were not backed by financial ability and hence could only attract few financiers,
thus posing a threat to the survival of SACCOs in the transport industry in Kenya. The concern for
low capital base was also noted by Njagi, Kimani and Ngugi (2012) despite the high demand for loans
by SACCO members.

Olando and Mbewa (2013) indicated that savings mobilization should be backed by adequate
institutional capital which ensures permanency and provide cushion to absorb losses and impairment
of members’ savings. Accordining to sharama 2009, the balance sheet of the bank and its deposit is
two side of one coin. Loan makes deposit and reverse is true. Lending activity can only be possible
when banks mobilize enough deposit; main activity is mobilizing deposit from surplus economic units’
deficit economic units. Kaskende 2009, Mohan 2012, success of bank greatly lies on deposit
mobilization. Mobilization of deposit is as essential of oxygen to human beings. One way in which
members remit their savings to a SACCO is through the regular share accounts. A regular share
accounts is the savings accounts of members, (Mishkin et al, 2007). Customers cannot write cheques
against these accounts although they can withdraw funds without giving prior notice or incurring any
penalties, (Kwame, 2010). However, in Kenya as many other countries, shares are not withdrawal and
are used as security for loans to members, (Omino, 2003).

2.5.4 Liquidity Management and Financial Performance.

Mwaura (2005) insists that lack of credit follow up, credit analysis, and hostile lending of money are
some of the factors that have contributed to financial gap and poor performance. By around 2003,
SACCO societies in Kenya were already taking deposits from persons not drawn from the common
bond, that is, public deposits, (ICA, 2003).

19

Liquidity risk needs to be monitored as part of an integrated institution wide risk management process
taking into account market and credit risk to ensure stability and improvement of loan portfolio in the
balance sheet. As Nyabwanga (2011) asserts, working capital management is a very important component of
corporate finance because it directly affects the liquidity, profitability and growth of a business and is important
to the financial health of businesses of all sizes as the amounts invested in working capital are often high in
proportion to the total assets employed. The assertion by (Ross et al., 2008) that reducing the time cash is tied
up in the operating cycle improves a business’s profitability and market value furthers the significance of
efficient cash management practices in improving business performance. According to Haileselasie’s 2012,
finding, out of the total respondents SACCO, hence a positive relationship existed between efficient working
capital management and financial performances.

2.5.5 Operating Costs and Financial Performance.

Asogwa et al. (2011) observed that high level of cost inefficiency is highly attributable to the low
profitability that results from inadequate organization of farmers into collective farmers’ institutions
that can provide opportunities for risk sharing and improved bargaining power. Revamping the
productivity of small scale farmers, therefore, requires collective farmers’ institutions that provide
opportunities for risk sharing and improved bargaining power that are not available to individual
farmers. A study by Mumanyi (2014) in Kenya on the challenges facing SACCOs in Mombasa County
indicated that the high cost of administration, the management of small loans and the high interest rate
of borrowing so as to lend to members were hindering the growth of SACCOs. It was further noted
that due to the environment in which SACCOs operate, there are inefficient and non- functional
infrastructure facilities which led to increase in the cost of operation

Njagi, Kimani and Ngugi (2012) in a study done in Kenya found out that SACCOs were experiencing
a low capital base, and in an attempt to discourage their members from borrowing from commercial
banks, they borrow from commercial banks at high interest rates so as to lend to their members. This
in essence pushes up the operating costs of the SACCOs. Studies find a favorable impact of
occupation-based commonality on the performance of credit unions, as commonality of occupation
suggests tighter bonds and reduces operating costs (Ward and McKillop, 2005). According to Tilahun
G. 2013 membership was very low, small portion members diversified their income, significant

20

amount of loan was not repaid, member ship growth trend was declined, all financial record keepings
were adequately maintained, deposit and share capital were increasing. According McKillop, 2005,
since cooperatives are communal organization their performance depends on communality rather than
operating cost. Communality control operating cost.

2.5.6 Financial Reporting and Financial Performance

Decision making is an everyday affair for any organization. The quality of decisions made depends on
the quality of the underlying information that forms the basis of that decision making. Of great
importance is the information supplied by financial statements, which generally provides a summary
of all the other activities of the organization. Financial reporting is the way a business reports on its
performance. International Accounting Standards Board proposed a guideline of procedures and
principles to be used in preparation of financial reports. These guidelines are referred to as the
Generally Accepted Accounting Principles (GAAP).

In order for the reports to be believed by various users, it is important that an independent person
(external auditor) audits the reports and confirm that they represent a true picture of the business. The
government, through the cooperative proclamations gives guideline on when and how the reports
should be prepared and submitted to the government auditor (WOCCU, 2011). According to kifile T.
(2012) the financial system in place including accounting and audit works are very weak in SACCOs.
Most of the primary SACCOs are not maintain proper financial records and produce reports timely.
Similarly, the accounts of the societies are not timely audited with three to four years lag in the case of
certain primary societies.

Internal financial statement users such as management, audit committee and board of directors have
interest in quality of to help them to reduce cost of capital (ISB, 2000; Meinten, C. 2011). Martina
M.et al, 2015 had conducted research to investigate the relationship between informational usefulness
of the net income pre –IFRS, 2011 and post –IFRS 2012) and of a comprehensive income statement
post IFRS 2012). The result of this empirical study revealed that two accounting results are
significantly associated with share price increased value usefulness for investor on Romanian financial
market.

21

A financial report is useful to existing and potential investors and creditors and other users in making
rational investment decisions. Access to information is a greater challenge to obtain, as sources of
information on firms, the competitive posture of market players, and market size and growth rates are
more difficult to find ( Abor and Biekpe, 2006).

2.7 Research Gap

From the reviewed empirical literature, it is evident that factors influencing the performance of
SACCOs are many-sided and are purely dependent on the operating environment of the SACCO.
Scholars identified various factors which contribute to the failure of co-operatives; Bhuyan (2007)
cited lack of members’ participation, Nyoro and Ngugi cited economic factors, education of
management committee and the staff, Chando et al (2009) cited debt burden, wrangles, hostility, lack
of institutional transparency and weak management while the ILO (2009) cited liquidity problems.
Makori, Munene and Muturi (2013) cited high dependency on short term borrowing, lack of liquidity
monitoring system, political interference, investment in non-earning assets and inadequate managerial
competences etc.

SACCOs operate in a unique environment, for instance, Micro finances employees enjoy many
employment perks including highly concessional internal loans compared to SACCOs. This implies
that the SACCO loans compete with the loans offered by Micro finances to their employees and
clients who happen to be members of SACCOs. Those mentioned factors in the studies affects
performance of the SACCO's directly or indirectly. However, the studied determinants were handful
and inevitable.

James Mutuma 2014b conducted the research in Kenya to establish between factors influencing
financial performance of savings and Credit cooperative societies. The finding reveal that Most of the
respondents, 261(87.6%) consider the interest charged being competitive in comparison to other
financial institutions. Only 37(12.4%) of the respondents are contrary to the opinion. This is a positive
result that shows SACCOs are offering better terms than other financial institution. Thus the interests
rates charged currently don’t affect the growth of this SACCO. However, the beta coefficient is not
tested to observe variable’s insignificance (poor analysis was applied).

22

Other research conducted was determinants of SACCOs’ Performance by Tilahun Gameda in Hula
woreda in 2013 by using organizational, functional and financial performance as dependent variables.
The major finding were membership was very low, small portion members diversified their income,
significant amount of loan was not repaid, member ship growth trend was declined, deposit and share
capital were increasing.

Financial performance indicators of SACCOs are not adequate because asset quality, adequacy of
capital, liquidity, etc are available. In addition to Kifle (2012) conducted research on Management of
Savings and Credit Cooperatives from the Perspective of Outreach and Sustainability and he
concluded that those grassroots and member-owned financial institutions called the saving and credit
cooperatives were able to mobilize huge financial resources and to provide credit and savings services
to a large mass base at a standard compared to that of other formal financial institutions. However
there is no evidence that reveals on what factors that a huge financial resource depends.

As a result this study was to conduct on the Determinants of Saving and credit cooperatives
(SACCOs) financial performance in Sodo Zuriya woreda with the combination of different variables
such as competition, internal (organizational politics), liquidity management, saving culture, operating
cost and financial reporting.
 It is in the face of such that this study aims at filling the gap by identifying the factors considered
influence on the financial performance of SACCOs in the SZW. This study adds value to existing
literature and may be used as a guide to SACCO policy development for the general good of the
country and their members.

2.7 Conceptual Framework

A conceptual framework is a set of broad ideas and principles taken from relevant fields of enquiry
and used to structure a subsequent presentation. Mugenda, O.M. and Mugenda, A.G. (2003) define a
conceptual framework a hypothesized model identifying the model under study and the relationship
between the dependent and independent variables. Kothari (2004) defines an independent variable
also known as the explanatory variable is the presumed cause of the changes of the dependent
variable, while a dependent variable refers to the variable which the researcher wishes to explain.

23

Figure 2.1: Conceptual Framework

 Competition from Omo MFI.

1. Products 3. Advertisement for loans
2. Customer service 4. Quality of management

 Internal Politics
1. AGM interruption 3. members exiting
2. Manipulation for 4. informal grouping
Loan approval
FINANCIAL
 SACCO members’ Saving Culture PERFORMANCE of SACCOs
1. Savings targets 3.Minimum saving (RROA)’.
requirement 2. Savings awards 4. Level of  Profit before
interest on deposit  Total asset.
 Liquidity management
 Loan disbursed.
Working capital,
 Members saving
Liquidity management policy
 Dependent variable

 Operating Cost
1. Salaries 3. AGM expenses
2. Committee allowances 4. Total expenses

 Financial reporting
1.External auditing 3.Insipection
2. Internal auditing 4. Reporting other income

Independent variables
Source:-Researcher own sketch.
24

CHAPTER THREE
3. RESEARCH METHODOLOGY
3.1 Introduction
This chapter covers the methods employed to structure the research process in gathering and analyzing
information to address the research objectives. It covers; research design, population, sampling design,
instruments and data analysis. Kombo and Tromp (2009) as well as Zikmund et al (2010) advance
that research methodology deals with the description of the methods applied in carrying out the
research studies.

3.2. DESCRIPTION OF THE STUDY AREA

Sodo Zuria is one of the woredas in the Southern Nations, Nationalities, and Peoples' Region of
Ethiopia. Part of the Wolayita Zone. Town of Sodo was separated from Sodo woreda. Sodo zuria is
one of the woreda found in wolayta zone which is found at 384km south from Addis Ababa, through
Hosaina road .It located between 6.72-6.990 NN latitude and 37.59-37.86 EE Longitude. According
to the Zonal Socio-economic profile, (2012) the Woreda covers 404.3 sq.km of land and it has two
agro ecological zones. Namely Dega / Highland 13%, Woynadega/ Midland 87%, characterized by
89.6 % plain, 6.89% undulated and 3.51% mountainous topography. . The nature of rainfall is bimodal
with mean annual rain fall of 1201-1600 mm.
Based on the 2007 Census conducted by the (CSA), the total population of Sodo zuria Woreda was
202913 of which 99,781 are male and 103,132 females. Out of the total population 92 % lives in rural
areas (BOFED, 2005; CSA, 2007). The average household size of the woreda is 4.8 which equal to the
zonal and regional average of 4.8. The total area of the woreda 404km2(Zonal Socio-economic profile,
2012).

Out of the total population 92 % lives in rural areas (BOFED, 2005; CSA, 2007. The total area of the
woreda 404km2(Zonal Socio-economic profile, 2012) in the woreda 60.4% of the land is cultivated,
7.8% is covered by forests and bushes 16% is grazing, irrigable land0.77%, cultivable land is 1.23%,
uncultivable land 0.98 and 12.82% is covered by others. Agriculture is the major livelihoods means
and the main source of income of the farm households is on-farm and off-farm activities (zonal socio
economic profile 2012).

25
3.3. Research design
Lavkaras, p. (2008) describes a research design as a general plan or strategy for conducting a research
study to examine specific testable research questions of interest. Research design is the blue print for
the collection, measurement and analysis of data. It is a plan and structure of investment conceived so
as to obtain answers to research questions (Coopers and Schindler, 2008).

This study adopted a descriptive survey design to answer the research questions. According to Orodho
(2003), descriptive survey is a method of collecting data by interviewing or administering a
questionnaire to a sample of individuals which can be used when collecting information about
peoples’ attitudes, opinions, habits or any other social issues. Descriptive research is a description of
the state of affairs as it exists (Orodho and Kombo, 2002). Asserting that descriptive study is
undertaken in order to ascertain and be able to describe the characteristics of the variables of interest in
a situation. It was appropriate for this study as it helps in understanding the determinants of the
financial performance of Sacco’s in SZW and therefore answers the “what” question of the study. The
current study intended to find the influencing factors of financial performance in SACCOs.

3.3.1 Population.
Mugenda and Mugenda (2003) explain that the target population should have some observable
characteristics, to which the researcher intends to generalize the results of the study. The population of
the study were saving and credit Cooperatives (SACCOs) in Sodo zuria woreda which are registered
under woreda cooperative promotion office. The target population of this study was employees and
members of SACCOs in the woreda. The accessible populations were six SACCOs in sodo zuriya
woreda.

3.3.2 Sample size

Kombo and Tromp (2009) also define a sample as a finite part of a statistical population whose
properties are studied to gain information about the population. Since, taking all population for the
study does not result in efficiency, taking sample is justifiable. It is naturally neither practical nor
feasible to study the whole population in most studies. Hence, a set of participants were selected from
the population, which is less in number (size) but adequately represents the population from which it is
drawn so that true inferences about the population can be made from the results obtained.

26

SACCOs have 1525 members and 7 employees. To determine the number of respondents from whom
the primary data were collected is using Taro Yamene (1970) formulae .The study intended to collect
data from a total of 142 respondents. This sample size was supported by suggestion of (carvalho
1984) as cited by (Nigusie D, 2015), if the size of population is found between 1201-3201, the sample
of 125 is adequate. Hence 142 are significantly high as the population size of this study found near the
beginning of suggested interval (1201).

n=N/ 1+N (e) 2 Where N= population

n=1532/1+1532(0.08)2 = 142
n= sample size , e=confidence interval

The sample was distributed among the SACCOs proportionally based on the distribution of the total
population, however, all employees were taken as part of the sample as they are few.

Table.3.1. Sampling Distribution.

Name of SACCOs population Gender Proportion sample

(%)
M F T M F T M F T
 Tome Gerera SACCO 151 58 209 10.00 3.80 13.8 14 5 19
Shoala Kodo SACCO 211 68 279 13.83 4.45 18.30 18 7 25
Gulgula SACCO 174 48 222 11.4 3.14 14.54 15 4 19
AmachoKodo SACCO 215 68 283 14.09 4.45 18.54 19 6 25

Bosa Kacha SACCO 99 66 165 6.50 4.32 10.82 9 6 15

Gibrina Balemuyawoch SACCO 270 90 360 17.70 5.90 23.60 24 8 32

Total Employee 7 - 7 - - - - 7
Total 1127 405 1532 73.5 26.5 100 106 36 142

3.3.2 Sampling Techniques

The study utilized mixed approach to select sample (I.e,both probabilistic and non-probabilistic
sampling techniques). Stratified sampling technique was employed to obtain a sample for the study.

27

Target population was stratified by position of respondents in SACCO. Stratified sampling is a

probability sampling design that first divides the population into meaningful non- overlapping subsets,
and then randomly chooses the subjects from each subset Sekaran and Bougie (2011) while Mugenda
and Mugenda (2003) and Kothari (2001) agree to this definition. Kombo and Tromp (2009) refer to
stratified sampling as the dividing of the population into homogenous subgroups then taking a simple
random sample from each subgroup. Upagade and Shende (2012), confirms that a simple random
sampling is probabilistic and is also known as chance sampling.

Wolaita Zone had 13 rural woreda and 2 town administrations. Out of which Sodo Zuriya woreda was
purposively selected due to fact that the woreda has large number of SACCOs continuously audited,
well participated in financial performance indicators for the last five years (WZCPMD, 2016). The
woreda had 32 SACCOs, from which six SACCOs were still purposively selected for they are having
five years continuously audited financial statements. The reason for using this method of sampling is
that availability of five year consecutive audited financial information, and selected sample Sacco’s
member accounts 37% of the member of SACCOs in the study area. To obtain the respondents from
the sampling frame simple random sampling was followed by Stratified random sampling.

3.3.3 Source and Method of Data Collection.

The study used both primary and secondary data. The secondary will be collected from the audited
financial statements of the respective cooperatives included in the sample. schedule are appropriate
for studies since they collect information that is not directly observable as they inquire about feelings,
opinion, attitudes accomplishments as well as experiences of individuals (Mellenbergh, 2008).
This method of data collection is very much like the collection of data through questionnaire, with
little difference which lies in the fact that schedules (proforma containing a set of questions) are being
filled in by the enumerators who are specially appointed for the purpose(Kothari,2004).

Schedule is a pre-formulated and written set of questions to which the enumerators record the answers
usually within rather closely delineate alternatives. For this study questions were prepared by Likert
scale. It is an interval scale that specifically uses five point of strongly disagrees, disagree, neutral,
agree and strongly agree. The Likert measures the level of agreement or disagreement.

28

It is good in measuring perception, attitude, values and behavior and it has scales that assist in
converting the qualitative responses into quantitative values (Mugenda and Mugenda, 2003;
Babin,Carr and Griffin, 2010; Upagade and Shende, 2012, Zikmund,).

In the light of practical application, when the number of categories is large, researchers support
treatment of ordinal variables as if they were continuous (Atkinson, 1988; Babakus, Ferguson, &
Jöreskog, 1987; Muthén & Kaplan, 1985).

Therefore, questionnaires were prepared in five point likert scale was used to collect primary data
from the sampled members of cooperatives. These data instrument was divided in two sections where
the first section addresses the general information of the respondents while the second section
addresses the six research objectives (determinants of financial performance).

3.3. 4. Pilot study

A pilot study is a preliminary test was conducted before the final study to ensure that research
instruments are working properly. Mugenda, O.M. and Mugenda, A.G. (2003) suggest that the piloting
sample should be 10% of study sample depending on the study sample size. The questions answered
during this study were to answer; are the questions give the same meaning for respondents? Is each
questions measure what is intended to measure? Are the questions clear and understandable? Is the
questionnaire too long? In this stage of study 15 randomly selected part of sample were participated.
Piloting helped in revealing questions that were vague to allow for their review until they conveyed
the same meaning to all the subjects (Mugenda & Mugenda, 2003).

3.3.5 Validity of research instruments.

Creswell (2008) notes that validity is about whether one can draw meaningful and useful inferences
from scores on the instrument. To ensure content validity, the instruments was reviewed by high level
supervisor in Zone and an expert in woreda in the area of cooperatives financing and its performance
to assess the degree to which the instrument could measure and determine the content of a particular
concept.

3.3.6 Reliability of Research Instruments

Reliability is measure of the degree to which a research instrument yields consistent results after
repeated trials (Nsubuga, 2000). 29

After testing the data for tau- equivance, the loading for all variables were different (see, annex 1-6).
Cronbach’s alpha yield unbiased estimate of scales reliability for equal factor loadings and for
simmilr error variances are (Raykov T,1997). When factors loadings telling you the presence of error
co-variance and different factor loadings calculating cronbach’s alpha is meaningless (Raykov T,
2001). Anderson and Gebbing (1988) suggested two-step procedures (i.e, composite reliability and
Average variance extracted) for factors containing different loadings. A composite reliability measure
is analogous to coefficient alpha and estimates the internal consistency of a latent variable (Bagozzi,
1981a) cited by Seehyung K(2005) . The second reliability testing method adopted was average
variance extracted. It measures the amount of variance captured by scales in relation to variance due to
measurement error. When factors loadings are unequal average variance measure yield accurate result
than cronbach’s alpha for inter class coefficient of factors (Robert, Chris,and McNamee,2005). The
formula for this composite reliability index (adapted from RaykovT,(2004) was calculated as:

( ∑ lj ) 2
CR=
¿¿
CR=¿ Composite reliability, Lj = the standardized factor loadings for that factor, e = the measurement
error. ec=¿ Non-zero error covariance.
Anderson and Gebbing (1988) provided formula to calculate average variance extracted is
 ❑
AVE=∑ squared standardized loadings /¿ ¿ The minimum required coefficient for CR is 0.7 (Raykov,
❑

2001), according to Nunnaly and Brein strein(1994), the lower limit for CR is 0.8. For average
variance captured, Anderson and Gebbing(1981), Robert, Chris,and McNamee, (2005), Raykov T,
(2004) agreed as the minimum value is 0.5.

The test results indicates that coefficients of composite reliability for all variables were above
threshold. For variables competition and financial reporting extracted variance were less than
minimum required values (0.5). However, Hatcher (1994) cautioned, that this test is quite conservative
and stringent; “very often variance extracted estimates will be below 0.50, even when reliabilities are
acceptable”. Hence the constructs measured had adequate reliability for subsequent analysis. The
reliability for the instruments was presented here under.

30

Table 3.3 reliability test results

Variables name No of items CR coefficient Variance extracted

Competition from Omo MFI 12 0.853 0.402

Internal politics 13 0.910 0.524
Saving culture 13 0.900 0.579
Liquidity management 12 0.864 0.586
Operating cost 12 0.849 0.688
Financial reporting 12 0.793 0.424

3.3.7 Data processing and Analysis Techniques

Data were cleaned, coded, entered and analyzed using Statistical Package for Social Science (SPSS,
Version 21.0). Technically speaking, data processing implies editing, classification, coding, and
tabulation of collected data so that they are amenable to analysis (Kothari, 2004). Data analysis
involves computation of certain measures along with searching for patterns of relationships that exist
between the dependent variable and independent variables. The data were analyzed according to
variables and objectives of the study.
A mix of tools was used since the data collected was both qualitative and quantitative. For the
qualitative data which was measured using the Likert Scale, Content Analysis was carried out to
understand the relationship of each of the independent variable with the dependent variable. Also,
Principal Component Analysis was conducted to determine the significant factors in the financial
performance of SACCOs in Sodo Zuriya Woreda. High values ranging between 0.4 and 1.0 indicated
that the factor is appropriate while a value below 0.4 would mean that the factor would not be
appropriate (Muganda, 2008).

3.3. Analytical Model

The researcher used multiple regression analysis (Karl Pearson’s Coefficient Correlation) to examine
the strength of the relationship between the dependent variable (Financial performance). Multiple
Regressions is a statistical tool that allows you to examine how multiple independent variables are
related to a dependent variable (Chris Brooks 2008).

31

Hannah Waithera, (2015) used this scale to establish the relationship between investment policy and
financial performance of banking sector in Kenya and Efferem G. etal, (2015) used the same scale to
establish the determinants of domestic private investment in wolaita zone. To measure the financial
performance the dependent variable which is rate of return on asset was used. As a result, to conduct
the study the following multiple regression equation has been used.

Y= β0+ β1CT+β2IP+ β3SC+ β4LM + β5OC+ β6FR+ ε -------equation (1)

Where: Y is the dependent variable (Financial performance of SACCOs) which is measured by
RROA.
β0, is the regression coefficient/constant/Y-intercept. β1, β2, β3, β 5, β5 and β6 are the slopes of the
regression equation, CT: the competition from other financial institutions, IP: The Internal Politics.
SC: Saving Culture.
LM: Liquidity Management.
OC: Operating Cost.
FR: Financial Reporting.
ε: an error.
Using software package, the regression model was tested on how well it fits the data. The significance
of each independent variable was also being tested and Fischer distribution test called F-test applied to
test the significance of the overall model. After which the conclusions were drawn on the basis of p-
value. Null hypothesis of beta was rejected then overall model was significant and it was accepted the
overall model was insignificant. In other words if the p-value is less than 0.05 then the model was
significant and has good predictors of the dependent variable and that the results are not based on
chance. If the p-value is greater than 0.05 then the model was not significant and cannot be used to
explain the variations in financial performance of SACCOs at a 5 percent confidence interval.
Similarly the t-test statistic was used to test the significance of each individual predictor or
independent variable and hypothesis. The p-values for each t-test were used to make conclusions
whether to fail to accept or fail to reject the null hypotheses. The benchmark for this study for failure
to reject or failure to accept the null hypothesis is a level of significance at 5 percent.

32

If the p-value is less than five percent the null hypothesis failed to be accepted and the alternate
hypothesis failed to be rejected. Also if the p-value is greater than 5 percent the null hypotheses were
accepted and the alternate hypotheses were rejected.

To give meaning for the y- intercept (constant term) two critical points were suggested by Jim Frost,
(2013), He stated that constant term is always almost meaningless, because zero setting for all
predictor variables can be out of data range. Furthermore, the author suggested that when the
relationship for observed data is locally linear and changes its linear relationship after certain level
such point the regression constant can meaningless hence the researcher focus should be on the
coefficient of predictor variables. Constant term is Garbage collector (Ibid, 2013).

In this study, due to presence quadratic relationship,constant terms were out of data figure were
considered as meaningless. To determine proportion of change in financial performance that is
explained by relationship between dependent and independent variable, multiple coefficient of
determination (R2) and to test whether overall model is significant, ANOVA were used. Ngugi (2001)
used a regression analysis in a study on the empirical analysis of interest rates spread in Kenya.
Dogan(2013), used the same model to determine effect of size of business on its profitability
companies quoted Istanbel security exchange in Indonesia as well as Eferiam G. etal .(2015) used the
same model to establish determinants of domestic private investment in Wolaita zone.

3.3.10.1. Variable’s Definition and Measurements

3.3.10.1.1. Dependent variable
Financial Performance (FP): Is a measure of how well firm use assets from its primary mode of
business to generate revenues. It measures the financial health of an organization. The common
indicators of financial performance are; profits, return on investment, return on assets, value added and
margins among others. Financial performance provides valuable insights on achieving firm level
economic goals as an evaluative referent and indication of past and present organizational adaptation
(Brouthers, 2002; Keats & Hitt, 1988). Accordingly, financial performance is considered an important
outcome variable by both practitioners and strategy researchers (Bettis, 1981; Rumelt, 1974).
According to Lin et al., 2008 firm performance refers to the outcomes achieved in meeting internal
and external goals of firm. As competition intensifies due to changes in the industry structure and the
emergence of new technologies, 33

organizations are determined to reduce their operational costs while enhance their profitability.
Similarly, financial performance of SACCOs can also be viewed in light of their overall profitability
and return on investment ( Ogilo,2012).

According to Hannah Waithera 2015, the ratio of total profit to average total asset used as the measure
of financial performance of saving and credit cooperatives in banking sector. According to Tilahun G.
2013 analyzed the net income as dependent variable to establish the relationship between cooperatives
performance and predicators. Thus, in this study the researcher used (RROA) as measure of financial
performance. This is expressed by Net income before interest on members deposit to average asset.

Table. Indicators to assess financial performance of SACCOs.

Indicators Measure / definition
Profit BI on The total average amount of profit for the given period(5 years) in ETB
Loan disbursed The total average amount of loan disbursed in (5 years) in ETB
Members saving The total average amount of deposit made by the member given period(5 years) in ETB
Total assets Total asset, the sum of both fixed and current assets owned by SACCOs in ETB
Source; Hannah W, 2015.
3.3.10.1.2 Independent variables
Competition: is the rivalry between two or more businesses striving for the same customer or market
(Porter, 1990). Previous research on co-operative finance during crisis indicates that they tended to
fare better than investor owned savings and loan institutions, as they pursue more conservative
investment policies (Hansmann, 1996; Chaddad and Cook, 2004). To measure this variable
respondents were asked to respond the extent to which their cooperatives faced completion with Omo
MFI.

Internal politics: consists of activities undertaken to gain advantage or influence organizational

decision makers in ways intended to serve a purpose other than the best interests of the overall
organization. Internal politics consists of the games people play to promote decisions that are based on
criteria other than merit, where personal goal gets magnified and focused and get prioritized than the
Organizational goal (Gichira, 2010). In 2015 Janet L.Walesh conducted the research to establish the
relation between corporate performances with internal politics and concluded that organizational

35

politics are neither inherently good, but positive political cultures improves the decision making and
organizational performance. To measure this variable respondent were asked to respond the extent to
which existence of internal politics in their SACCO and its degree of influence on financial
performance.

Savings culture: is the practice of setting aside a portion of disposable income not spent on
consumption of consumer goods, but accumulated in an account (Loayza and Shankar,
2000).Dr.Florence Memba conducted the research to establish the relationship between financial
innovation and financial performance of deposit taking SACCOs in Kenya; he used saving culture and
investment policies as explanatory variable. The result revealed that predictor variables significantly
explain financial performance. To measure these variable respondents were asked to respond the
extent to which in their cooperatives saving culture exist and its effect on financial performance.

Liquidity management: is the process of determining optimal cash balance which involves a
combination of investment and financial decisions. The purpose of cash management is to determine
and achieve the appropriate level and structure of cash, and marketable securities, consistent with the
nature of the business's operations and objectives (Brigham, 1999). To measure this variable liquidity
ratio will be applied. To measure this variable respondent were asked to respond the extent to which
their cooperatives managed liquid assets and its impact on financial performance.

Operating costs: are expenses associated with administering a business on a day to day basis. They
include both fixed costs and variable costs (Woods, 2008). According to Sharon R. Barstow 2015, who
is specialist in banking and corporate finance in France stated that high operating leverage is
determinants to profit but a high fixed cost structure has some benefits.

The principal advantage is that companies have more to gain from each additional sale (marginal
service) because they don’t have increase costs to generate more revenue. A company with low
operating leverage has a high percentage of variable costs to total costs, which means fewer units have
to be sold to cover costs; In general, the higher the operating leverage leads to lower profit. To
measure this variable respondent were asked to respond the extent to which their cooperatives
managed the operating cost and its influence on financial performance.

Financial reporting: is financial reporting is the “communication of financial information useful for
36

making investment, credit, and other business decisions” (Wild, Shaw &Chiappetta, 2009).

According to Oshisami (1992) Audited financial statements made available by the auditor general
represents the authentic and legal financial position of a company at any time. In 2009, Mugo Jermia
Mune conducted the research in Kenya to establish the relationship between internal control and
financial performance and suggested that there are general perceptions institutions financial
performance is the result of efficient controlling and reporting system. Kershina and Lucus W, 2015
conducted the relationship between financial reporting and financial performance on the listed
companies in New Zealand, financial reporting is statistically significant in explain the return. This
independent variable will be measured by the responses of opinion towards availability and quality of
both internal and external auditing as well as reporting of unusual revenue. To measure this variable
respondents were asked to respond the extent to which their system strength of financial reporting and
its impact on financial performance.

3.8 Ethical Considerations

The researcher obtained informed consent from the respondents before undertaking to collect data
from the field through informing and explaining the objectives of the research in order to solicit
informed consent from the respondents. High level of confidentiality on the information provided by
respondents’ questionnaires was maintained. Bryman (2007) states that it is the responsibility of the
researcher to carefully assess the possibility of harm to research participants, and the extent that it is
possible; the possibility of harm should be minimized. The researcher recognized those issues under
study is sensitive because it involves the core business of the organizations. Therefore, respondents
were protected as identity of the respondents as the questionnaires did not require the identities.

37
CHAPTER FOUR
RESULTS AND DISCUSSION
4.1 Introduction.
This study explored the determinants of the financial performance of SACCOs in sodo zuriya woreda
specifically, it investigated the influence of competition from Omo MFI, internal politics, saving
culture, liquidity management, operating costs and financial reporting on the financial performance of
SACCOs. This chapter deals with the analysis of data. The data analysis is in line with the specific
objectives where patterns were investigated, interpreted and inference were drawn on them
4.2 Preliminary data
This section presents the preliminary findings of the study in terms of the response rate and sample
demographics.
4.2.1 Response Rate.
The number of questionnaires that were prepared and passed to data enumerator was 142. A total of
128 respondents were reached and filled by data collector and. This represented an overall successful
response rate of 90%. This large response rate obtained is most probably due to using Schedule
method of data collection was used. According to Mugenda and Mugenda (2003), a response rate of
50% or more is adequate. Babbie (2004) also asserted that return rates of 50% are acceptable to
analyze and publish, 60% is good and greater than 70% is very good.

10%

128(90%)Returned
14(10%) Unreturned

90%

Figure 4.1. Response Rate

Source- Survey result
4.2.2 Demographics
The preliminary information gathered regarding the characteristics of the respondents was about
SACCO name, SACCO affiliation and duration of respondents in SACCO.
38
4.2.2.1 SACCO Name.
The respondents were asked to indicate their SACCO in which their membership exists. Table 4.1
shows that 25 % of the respondents were from Gibrina Balemuyawoch SACCO, 19.53% were from
Shola Kodo SACCO and 16.40% were AmachoKodo SACCO members. The other ratios are
distributed in table below. The findings imply that the respondents were well spread across all six
SACCOs therefore representative of population thus enhancing accuracy of response.

Table 4.1 SACCO’s Name.

SACCO Name Frequency Percent

Gibrina Balemuyawoch SACCO 32 25.00

Shoala Kodo SACCO 25 19.53

AmachoKodo SACCO 21 16.40

Tome Gerera SACCO 18 14.06

Gulgula SACCO 18 14.06

Bosa Kacha SACCO 14 10.93

 Total 128 100

Source- survey result 2017.

4.2.2.2 Duration in SACCO
The study sought to determine the period the respondents have been in their current SACCOs. Figure
4.2 shows that 31.25 % of the respondents have been in their current SACCOs for a period of between
4-6 years, 25.78% indicated between 7-9 years and 20.31% indicated more than 9 years. The findings
imply that the respondents have been in their respective SACCOs for duration periods of more than
one year thus have knowledge about the issues the researcher was interested in. This was also
important information in guaranteeing the reliability of data obtained as the respondents were
representative of the population.

39

Figure 4.2. Duration in SACCO

31.25
35
30 25.78
percent

25 20.31
16.4
20
15
6.25
10
5
< 1 year 1-3years 4-6years 7-9years > 9 years
0
1 2
Duration 3
of members 4
in SACCO 5

Figure 4.2. Duration in SACCO

Source- survey Data 2017
4.3. Sampling Adequacy
To examine whether data collected was adequate and appropriate for inferential statistical tests such as
factor analysis, regression analysis and other statistical tests two main tests were performed namely,
Kaiser-Meyer-Olkin(KMO) measure of sampling adequacy and Barlett’s test of sphercity. For a data
set to be regard as adequate and appropriate for further statistical analysis, the value of KMO should
be greater than 0.5 (Field,2000).

Findings in table 4.2 reveals that the KMO statistics for variables were minimum of 0.76 through
0.904 which were significantly high; that is greater the critical level of significance of the test which
was set at 0.5 (field, 2000). In addition to KMO test, the Barlett’s tests of sphercity results were also
highly significant for the given degree of freedom, the p-value for all variables were (0.000). The
results summarized in table provide excellent justification for further statistical analysis to be
conducted. The p-value of(0.000) shows that the factor analysis is need to be conducted for the scales.
Consequently, the factor analysis was conducted and the results indicates all items loading of all
variables attracted the coefficients greater than 0.3 which is minimum required(Zikmund, Babin,Carr
and Griffin (2010)) hence were retained for further statistical analysis (see annex 1- 6).

40

Table 4.2 Sampling Adequacy and Bartlett's

Variables KMO Bartlett's Chi- Df P-Value
Measure Square

Competition From Omo MFI. 0.760 721.48 66 0.000

Internal Politics 0.888 1642.50 78 0.000

Saving Culture 0.896 1819.79 78 0.000
Liquidity Management 0.900 2008.02 66 0.000
Operating Cost 0.904 1735.167 66 0.000
Financial Reporting 0.836 772.334 66 0.000

Source –computed from spss output.

4.3 Normality Tests.
The researcher sought to assess the normality of data for the sample taken in respect of various
variables in the study. The purpose of normality test was to assess whether the sample was obtained
from normally distributed population. To measure this, the Shapiro – Wilk(S-W) normality test was
conducted. According to Shapiro – Wilk(S-W) tests, if P-value is greater than 0.05, the described as
obtained from normally distributed population (Yap and Sim,2010).
Table 4.3 shows the Shapiro - Wilk(S-W) tests. The p- values for all variables namely; competition
from Omo MFI, internal politics(organizational politics), saving culture , liquidity management,
operating costs and financial reporting were less than 0.05 in respect Shapiro – Wilk(S-W) test. From
the finding one can conclude that the sample was not taken from normally distributed population.
Condition of normality is required for one fit a classical linear regression model (sekaran, 2003).
Accordingly, such data does not qualify for classical linear regression analysis (sekaran, 2003).
Table 4.3: Tests of Normality
Variables Shapiro-Wilk (W-
S) Test p-value
statisti
c
Financial performance 0.857 0.000
Competition from Omo MFI 0.832 0.000
Internal politics (organizational 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
Source – Computed From SPPSS Out Put

41

4.4. Financial Performance of SACCOs.

The financial performance of SACCOs was evaluated using various indicators namely; average total
profit, average total assets, loans disbursed and SACCO members’ savings. To this end financial
performance was summarized by measuring Rate of return on Asset. The findings were as discussed
below.

4.4.1. Average Total profit Trends Analysis.

The study sought to analyze trends of profit of SACCOs over a period of five years. Results in Figure
4.3 shows that the average mean of profit increased gradually from 13.91 thousand birr in 2012 to
21.89 thousand birr in 2015 and outstanding incline to 34.69 thousand birr in 2016. The findings imply
that the absolute figure of profit’s trend of SACCOs increased across the years. The findings imply
that there was growth of SACCOs.
 40
34.69
Average total profit for the 35
30
(in 1000ETB)
25 21.89
period

20 15.54 16.67
13.91
15
10
5
0
1 2 3 4 5
2012 2013 2014 2015 2016
year
Figure 4.3: Average Total profit Trends Analysis.
Source-Computed from SPSS result
4.4.2. Average total Asset owned by SACCOs
The study sought to determine the total assets owned by the SACCOs across the years. Results
indicate that average total asset was increased in the total assets owned by the SACCOs. This is
disagreed to the findings of Gicheru, Migwi and M’Imayara(2011) who averred that SACCOs had
low capital basis

42

Figure 4.4 Average Total Asset Trends Analysis

6.56
Average Total asset

7
In 100000 ETB

6
5 4.23

4 3.08
2.59
3 2.19

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

Source-Computed from SPSS result

4.4.3 Loans Disbursed to members
The study sought to found the amounts of loans disbursed to the member across the five years. Figure
4.5 indicates that there was a slight increase in the year 2014. After 2014 the positive changes on
amount of loan disbursed was highly significant. This is most probable due to drastic replacement of
SACCOs committees in 2014 through election after promotion office examined weak financial
management. The study findings further revealed that as the average loan disbursed to member
increased.
The findings are dissimilar to the findings of a study by Gicheru, Migwi and M’Imanyara(2011) who
averred that majority of SACCOs were weak in terms of loans granted and the capital base. The author
further stated that some of SACCO had not granted any loans to members as monthly share
contribution was low due to low patronage.

The fining is similar with that in (Desalew,2014) who averred that member in SACCOs has access to
credit as a primary service. He further argued that for traders the main problem is a shortage of
working capital and SACCOs could be very useful. Through SACCOs, members can get micro and or
macro credits.

43

Figure 4.5:Loans Disbursed to Members Trends Analysis.

5
Average ammount of

4 4.61
by SACCOsin
loan disbursed

(100000ETB)

3
2.88
2
1.61 1.82
1 1.51

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

Source-Computed from SPSS result

4.4.4 SACCO Members’ Savings
The study sought to determine the saving culture of the members in SACCOs. A result reveals that
there was gradual increase in the saving culture from 2012 to 2014. But there were significant increase
in saving culture of member. To sum up the saving culture was increased across the year. The finding
is agreed with that in sharama (2009), the balance sheet of the bank and its deposit is two side of one
coin. He further argued that Loan makes deposit and reverse is true.
Figure 4.6: Average Total Deposit Trends Analysis
Average Total members sav-

3.15
3.5
In 100000 ETB

3 2.559
2.5 2.01
ing

1.608
2
1.242
1.5
1
0.5
0 2012 2013 2014 2015 2016
1 2 years3 4 5

Figure 4.6: Average Total Deposit Trends Analysis

Source-Computed from SPSS result
4.4.5. Rate return on asset of SACCOs.
The study required to determine operating efficiency of SACCOs across the years. To measure this
rate of return for SACCOs was used.
44
The finding indicates that the financial performance of SACCOs was decreased from 2012 through
2015 but there were very low raise in 2016. The finding implies that SACCOs are operationally
inefficient. This further indicates that the quality of assets possessed SACCOs in generating profit was
low. The finding is similar with that in Muker (2014) noted there are some external and environmental
obstacles which distract the realization of profit maximization. He further argued that these barriers
tend undermine the efficiency of financial institutions
Figure 4.7: Operating Efficiency (Average Rate of Return on Asset) Trends Analysis
 Finanancial Performance
Rate of return on asset
7 6.34
5.99
6 5.39 5.16 5.28
5
4
3
2
1
0
2012
1 2013
2 20143 20154 2016 5
YEAR

Source -Computed Survey data.

4.4.5.1. Descriptive statistics for Rate of return on Asset.
Descriptive analysis was conducted to understand the direction of the rate of return of SACCOs in
observation period to each sampled SACCOs. Rate of return measures the profitability of total asset
and treated as measure of financial performance in this study. Rate of return measure contains two
elements efficiency (total asset turn over) and effectiveness (profit margin), Kifle T, 2011). Financial
performance Shola Kodo SACCO is 8.09(highest) and Gulgula SACCOs 4.41(lowest). Result in table
4.5 in shows that the rate of return of SACCOs varied between 4.41 and 8.09; the average rate of
return for SACCOs was 6.27. The standard deviation 1.398 indicates that the variation of financial
performance between SACCOs is 1.398%. This is significantly low as compared to findings in kifle
T.2011 who did research on management of saving and credit cooperatives from perspectives of
outreach and sustainability, the rate of return were minimum and maximum of 31% and 33%
respectively.

45

Figure - Descriptive statistics for Rate of return on Asset.

 10 8.09
Average rate of return for 7.37
obsarved SACCOs 8 6.3 6.15
4.98
6 4.41

4
2
0

NAME OF SACCOs

Source -Computed Survey data

4.5. Determinants of financial performance.
This section attempts to analyze the findings of the various determinants of financial performance of
SACCOs as were hypothesized by the researcher. They include; competition from Omo MFI, internal
politics, saving culture, liquidity management, operating costs, and financial reporting.
4.5.1. Competitions from Omo MFI
The second objective of the study was if competition from Omo MFI affects the financial performance
of SACCOs in Sodo Zuriya woreda. A reliability test, factor analysis, descriptive analysis, correlation
analysis, regression analysis, ANOVA and scatter diagram were done in respect of this variable.
4.5.1.1 Reliability Test for Competition
The reliability results for competition attracted a coefficient of composite reliability and variance
extracted were 0.853 and 0.402 respectively, hence the statements were good for analysis as shown in
table.
Table 4.5. Reliability Test for Competition
Number of items Composite reliability Variance extracted
12 0.853 0.402
4.5.1.2 Descriptive Analysis for Competition.
The second objective of the study was to determine if competition from micro-finance affect financial
performance of SACCOs in the study area. Table 4.6 shows that 78.2% of the respondents disagreed
that micro-finance are a great threat to survival of their SACCO, 81.3% disagreed that Omo Micro
finances saving Products Preferred to their SACCO products and
46
88.3% disagreed that loans from micro-finance are more attractive than loans from their SACCO.
Furthermore, results indicated that 87.8% of the respondents disagreed that Collateral requirement by
OMF was better than SACCO’s, 51.9% disagreed that interest rate on loans of micro-finance was
better than that of the SACCO and 78.7% disagreed that Customer service of OMF was better than
our SACCO. In addition, 71.1% of the respondents disagreed that OMF work on extreme deposit
mobilization, 79.7% disagreed that entrance fee in Omo micro finance was lower than in SACCO and
69.6% disagreed that Omo Micro finance poach SACCOs member as well as, 61.7% of the
respondents disagreed that Omo Microfinance has better good will in community than SACCO, 72.7%
disagreed that SACCOs depend s on Micro finance and 67% disagreed that Omo Micro finances has
better experience in rural financing than SACCO.
The mean score of the responses for this section was 2.28 indicating that more employees disagreed
that SACCOs were faced with a lot of competition from the Omo micro finance institution. The
findings imply that the SACCOs were faced with low competition from Omo micro finance
institution.
The findings imply that financial performance of SACCOs was impacted by competition from Omo
MFI.
The findings is disagreed with those in Chadad and Cook(2004) who did a research on a co-operative
finance during crisis indicated that cooperative finance tended to charge better than investor owned
saving and loan institutions, as they peruse more conservative investment policies. It also disagreed
with the findings on Auka and Mwangi(2013)that SACCOs members were seeking financial service
from commercial banks and other financial service providers.

The findings are agreed with those of Hesse and cihak(2007) who declared that cooperative banks in
tend to be more stable than commercials banks, especially during financial crisis as their investment
patterns tend to be less speculative and returns are less volatile.

47
Table 4.6 Descriptive Analysis for Competition from Omo MFI
Statement S/Agree Agree Neutral Disagree S/
F(%) F (%) F (%) F (%) Disagree
F (%)
Omo Micro finances are threat for our SACCOs 12(9.4) 8(6.3) 10(7.8) 54(43.8) 44(34.4)
Omo Micro finances saving Products Preferred 7(5.5) 8 (6.3) 9(7) 71(55.5) 33(25.8)
Omo Micro finance Loans more Attractive 6(4.7) 11(8.6) 1(8.6) 59(46.1) 51(42.2)
Collateral requirement by OMF was affordable 7(5.5) 9(7.0) 1(0.8) 61(47.7) 50(39.1)
Interest rates of OMF is better than our SACCOs 21 (16.4) 26 (20.3) 12(9.4) 21(16.4 48(37.5)
Customer service of OMF was better than our 13(10.2) 21(16.4 6(4.7) 42(32.8 46(35.9)
OMF work on extreme deposit mobilization 10(7.8) 21(16.4 6 (4.7) 55(43.0 36(28.1)
Entrance fee in Omo micro finance is lower than 21(16.4) 21(16.4 - 31(24.2 71(55.5)
Omo Micro finance poach SACCOs member 15(11.7) 20(15.6 4(3.1) 55(43.0 34(26.6)
Omo Microfinance has better good will in 11(8.6) 35(27.3) 3(2.3) 48(37.5 31(24.2)
SACCOs depend s on Omo Micro finance 58(45.3) 20(15.6 1(0.8) 69(53.9 24(18.8)
A Omo micro finance has better experience 9(7.0) 41(32.0) 1(0.8) 50(39.1 27(21.1)
Mean 16(12.2) 20(15.3) 4(3.2) 49(38.8) 39(30.1)
Source-survey data. NB=responses were summarized as (strongly agreed%+ agreed %) = %accepting
(agreed on) statement, S/disagree%+d/agreed%= %of rejecting (disagreed on) statement and by
mean(neutral inclusive)
4.5.1.3. Correlation Analysis- Competition and Financial Performance.

Variable performance Competition

Performance Pearson Correlation 1
Sig. Sig. (2-tailed)
Competition Pearson Correlation -0.254 1
Sig. Sig. (2-tailed) 0.004
Correlation analysis was conducted to determine whether a relationship existed between financial
performance and competition. Table 4.7 displays the results of correlation test analysis between
dependent variable (financial performance) and competition. The result shows that financial
performance was negatively correlated with competition with a weak correlation coefficient of -0.254.
This reveals that any positive changes in competition led to bad financial performance.
Table 4.7 Correlation Analysis
48
4.5.1.4 Regression Analysis - Competition and financial performance
After testing the normality of data, the result indicates that the data had linear and non-linear
components hence the option to carry out quadratic regression. Regression analysis was conducted to
empirically determine whether competition was statistically significant determinant of financial
performance. A regression result in table 4.8 indicates that the goodness of fit for regression between
competition and financial performance was satisfactory in linear regression. An R-squared of 0. 064
indicate that 6.4% of variances in financial performance SACCOs in Sodo Zuriya are explained by the
variances in competition from Omo MFI in linear model. The correlation coefficient of 25.4 %
indicates that the combined effects of predictor variables have a negative correlation with financial
performance. However the combination of linear and non-linear components the R-squared improved
to 34.5% which implies that the variance in financial performance of SACCOs is explained by
variances in competition from Omo MFI. The non-linear addition model is statistically significant with
F statistics of 32.849 and p-value (0.000).
The model being estimated take the forms of FP= β0+ β 1CT+ β 2CT2 +μ
Where FP= Financial performance CT= Linear composition of competition and
CT2 = non- linear composition of competition.
The above quadratic model is supported by the scatter plot and the line of best fit in figure 4.8 below
and the value The above quadratic model is supported by the scatter plot and line of best fit in figure
4.8 below and the value of R-square of 0.345 meant that the quadratic model had a stronger
explanatory power to the extent of 34.5% compared to the linear model which gave R-square of 0.064,
thus justifying the the model used as shown in table 4.8
Table 4.8: Model Summary - Competition and Financial Performance.
R R Std. Error of
Square Estimate R Square F df1 df2 Sig. F Change
Change Change
0.254a 0.064 1.317 0.064 8.675 1 126 0.004
0.587b 0.345 1.107 0.345 32.849 2 125 0.000
Dependent Variable: Financial performance
a
Predictors : (Constant), competition from OMFI
b
Predictors: (Constant), Competition from OMFI, competition from OMFI squared
50
4.5.1.5 ANOVA - Competition and Financial Performance.
The results reveal that competition from OMFI is statistically significant in explaining financial
performance of SACCOs in Sodo Zuriya Woreda. An F-statistic of 32.849 indicated that the combined
model was significant. This was supported by a probability value of (0.000). The reported probability
of (0.000) is less than the conventional probability of (0.05) thus significant and best predicator (see
annex 7). Table 4.9 displays the regression coefficients of the independent variable (competition). The
results reveal that competition is statistically significant in explaining financial performance of
SACCOs in Sodo Zuriya woreda. This is supported by (b= 1.067, p value = 0.000). The positive beta
explains that the decline in SACCOs performance reaches a point where it stagnate and tends to raise
whether they face competition or not. This is summarized in the regression model below;
FP= 14.558 -6.41CT+ 1.067CT2
This implied that the null hypothesis failed to be accepted and the alternative hypothesis failed to be
rejected.
Table 4.9 Regressions Coefficient- Competition from Omo MFI and Financial Performance
Model B Std. Error T Sig.
1 (Constant) 7.143 0.352 20.297 0.000
competition from OMFI -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
4.5.1.7 Scatter Plot-Competition from Omo MFI and Financial Performance
Figure 4.9 shows the scatter plot of competition from OMFI and financial performance. The figure
reveals that there was a negative relationship between the two variables (i.e. competition from OMFI
and financial performance. Therefore, an increase in competition affects financial performance
negatively. However, it is evident that when competition reaches to certain level, it drives SACCOs
to improving the quality of service to survive in micro finance market hence; their financial
performance tends to increase. This could further be translated into SACCOs are negligent to low level
of competition.

51
Figure- 4. 8. Scatter Plot-Competition from Omo MFI and Financial Performance
4.5.2 Internal politics
The third objective of the study was if internal politics affects the financial performance of SACCOs
in Sodo Zuriya woreda. A reliability test, factor analysis, descriptive analysis, correlation analysis,
regression analysis, ANOVA and scatter diagram were done in respect of this variable.
4.5.2.1 Reliability Test for internal politics
The reliability results for internal politics attracted CR coefficient of 0.910 and 0.524 hence the
statements were good for analysis as shown in table
Table 4.10 Reliability Test for Internal Politics
Number of items Composite reliability Variance extracted
13 0.910 0.524

4.5.2.2 Descriptive Statistics for Internal Politics

The third objective of the study was to determine if internal politics affect financial performance of
SACCOs in the study area. Results on Table 4.11 indicates that 73.44% of the respondents agreed that
their SACCO have members who are politicians, 67.2 % agreed that internal politics influence the
approval of loans in their SACCO. Additionally, 74.22% of the respondents agreed that election of
SACCO committee is not as per by -laws in their SACCO and 69.54% agreed that their annual general
meetings are normally disordered due to internal politics. 67.97% of the respondents agreed
Appointments of officials is rarely transparent in SACCO,
52
61% agreed that interference of political persons has affected the profitability of their SACCO and
54.7% agreed that members of their SACCO are leaving due to misuse of power by management
bodies. In addition, 66.4% agreed that management decisions are rarely objective due to internal
conflict, 53.9% agreed that there are several internal informal groupings in their SACCO which are
influenced by their personal group interests and, 48.4% disagreed that informal groupings in their
SACCO have led to a lot of negative energy in operations. 68.75% agreed that the management
committee is hardly dependent on other SACCOs decision, 61.7% agreed that Selfish interests
influence voting during meetings and 53.1% agreed that politics of other SACCOs spill over to their
SACCO.
The mean score for the responses was 3.52 which indicate that many employees agreed with the
statements regarding internal politics. The results revealed that internal politics influenced financial
performance of SACCOs. The findings imply that the SACCOs had weak policies in place hence there
was bad management of internal politics.

The findings further agreed with those in KUSCCO (2003) who asserted that co-operative
management committees are notorious for diverting members' funds into investments of dubious value
thus the law needs to be amended to strengthen the minister's regulatory hand. It should clearly
prohibit investments that are not related to the core objective of the society.

The findings are consistent with those in Akinwunmi (2006) who averred that co-operatives depend on
the unified efforts of large numbers of small individuals. He further argued that cooperation embodies
the spirit of working together to achieve a common goal.

The other critical constraint for growth of SACCO in Akinwunmi (2006) was leadership.
Purposefulleadership is important for success of SACCO; he argued that if leaders are transparent,
dedicated and truly serving, the co-operative society will succeed. A true leader does not cut corner,
does not inflate contracts so as to receive kickbacks, does not have favorites among members and does
not mismanage the resources.
The finding is similar with finding in Mumanyi (2014), the Co-operative Societies Acts sought to
reduce the strict state supervision of co-operatives so as to support the liberalization of co-operatives.
However, this led to abuse of office by those entrusted which led to cases of corruption and
mismanagement of cooperatives and the splitting of viable co-operatives into smaller inefficient units
53
 In addition to the findings are agreed with those in (chathoth and olsen, 2007), the authors stated that if
affiliated firms is dominated by the group authority, the effect of growth opportunity on firms
performance may not be related. Although internal politics often portrayed negatively, organizational
politics are not inherently bad, instead it is important to be aware of potentially destructive politics in
order to minimize their negative effects. They further declared that politics are one part of
organizations life, because organizations are made of different interest that needs to be achieved.

Table 4.11. Descriptive Analysis for internal politics

Statement S/agree Agree Neutral Disagree S/Disagree

F (%) F (%) F (%) F(%) F (%)
Our SACCO has members who are politicians. 55(42.97) 39(30.47) 6(4.69) 15(11.72 13(10.16)
Loan approval influenced by internal politics 63(49) 39(17.97) 6(5.47) 15(23.44) 13(3.91)
Elections of committee is not as per by law 34(26.56) 61(47.66) 11(8.6) 14(10.94) 8(6.25)
General meetings disordered by internal politic 60 (46.88) 29(22.66) 5(3.91) 21(16.41) 13(10.16)
Appointments of officials is rarely transparent 48 (37.5) 39(30.47) 7 (5.47) 7 (5.47) 27 (21.09)
Political interference has affected the profitabilit 23 (17.97) 55(42.97) 8 (6.25) 35(27.34) 7(5.47)
Members of our SACCO are leaving for 56(43.75) 14(10.94) 3(2.34) 34(26.56) 21(16.41)
Management decisions rarely objective 23 (17.97) 62(48.44) 6(4.69) 25(19.53) 12(9.38)
Informal groupings in SACCO influenced by 16(12.5) 5(41.41) 7(5.47) 38(29.69) 14(10.94)
Informal groupings in SACCO led to negative 47 (36.72) 10(7.81) 9(7.03) 46(35.94) 16(12.5)
Management committee hardly dependent 58(19.53) 8(49.22) 5(4.69) 44(14.84) 13(11.72)
Selfish interests influence voting during meeting 25(22.66) 63(39.06) 6(3.91) 19(23.44) 15(10.94)
Politics of other SACCOs spill over to our SA 29(15.6) 50(37.5) 5(15.6) 30(21.9) 14(8.6)
Mean 39(32.8) 42(30.43) 7(5.5) 27(22) 13(10.1)
NB=responses were summarized as (strongly agreed%+ agreed %) = %accepting (agreed on)
statements, S/disagree%+d/agreed%= %of rejecting (disagreed on) statements and by mean(neutral
inclusive)

4.5.2.3. Correlation Analysis- internal politics and Financial Performance.

Correlation analysis was conducted to determine whether a relationship existed between financial
performance and internal politics. Table 4.12 displays the results of correlation test analysis between
dependent variable (financial performance) and internal politics

54
The result shows that financial performance was negatively correlated with internal politics with a
moderate correlation coefficient of -0.320. This reveals that positive changes in internal politics to
reduce financial performance

Table 4.12- Correlation Analysis – Internal Politics and Financial Performance.

Variable performance Internal politics
Performance Pearson Correlation 1
Sig. Sig. (2-tailed)
Internal politics Pearson Correlation -0.320 1
Sig. Sig. (2-tailed) 0.000
4.5.2.4. Regression Analysis – internal politics and financial performance
After testing the normality of data, the result indicates that the data had linear and non-linear
components hence the option to carry out quadratic regression. Regression analysis was conducted to
empirically determine whether internal politics was statistically significant determinant of financial
performance. A regression result in table 4.13 indicates that the goodness of fit for regression between
internal politics and financial performance was satisfactory in linear regression. An R-squared of 0.102
indicate that 10.2% of variances in financial performance SACCOs in Sodo Zuriya are explained by
the variances in internal politics in linear model. The correlation coefficient of 32% indicates that the
combined effects of predictor variables have a negative correlation with financial performance.
However the combination of linear and non-linear components an R-squared improved to 18.8%
which implies that the variance in financial performance of SACCOs is explained by variances in
internal politics. The non-linear addition model is statistically significant with F statistics of 14.445and
p-value (0.000).
The model being estimated take the forms of FP= β0+ β1IP+ β2IP2 +μ
Where Y= Financial performance, IP= Linear composition of internal politics and
IP2 = non linear composition of internal politics.
The above quadratic model is supported by the scatter plot and line of best fit in figure 4.9 below and
the value of R-square of 0.188 meant that the quadratic model had a stronger explanatory power to
the extent of 18.8% compared to the linear model which gave R-square of 0.102, thus justifying the
model used as shown in table 4.13.

55
Table 4.13: Model Summary – internal politics and Financial Performance.
R R Std. Error of
Square the R Square F Change df1 df2 Sig.F
Estimate Change Change
0.320a 1.29070 0.102 14.361 1 126 0.000
0.433a 0.188 1.23266 0.188 14.445 2 125 0.000
Dependent Variable: Financial performance, a Predictors : (Constant), internal politics
p
redictors: (Constant), internal politics, internal politics squared
4.5.2.5 ANOVA – internal politics and Financial Performance
The results revealed that internal politics is statistically significant in explaining financial performance
of SACCOs in Sodo Zuriya Woreda. An F-statistic of 14.445 indicated that the combined model was
significant. This was supported by a probability value of (0.000). The reported probability of (0.000) is
less than the conventional probability of (0.05) thus the combination of linear and non-linear was
significant (see annex 8).
Table 4.14 displays the regression coefficients of the independent variable (Internal politics). The
results reveal that internal politics is statistically significant in explaining financial performance of
SACCOs in Sodo Zuriya woreda. This is supported by (b= 0.385, p value = 0.000).
The positive beta explains that the decline in Sacco’s performance reaches a point where it stagnates
and tends to raise whether they manage internal politics or not.
This is summarized in the regression model below; FP= 11.257-2.923IP+ 0.385IP2. Therefore, this
implied that the null hypothesis failed to be accepted and the alternative hypothesis failed to be
rejected.
Table 4.14. Regressions Coefficient- internal politics and Financial Performance
Model B Std. Error T Sig.
1 (Constant) 7.624 0.402 18.981 0.000
Internal politics -0.404 0.107 -3.790 0.000
2 (Constant) 11.257 1.073 10.492 0.000
Internal politics -2.923 0.702 -4.163 0.000
Internal politics squared 0.385 0.106 3.626 0.000
a. Dependent Variable: Financial performance
56
4.5.2.6 Scatter Plot- internal politics and Financial Performance.
Figure 4.9 shows the scatter plot of internal politics from OMFI and financial performance. The figure
reveals that there was a negative relationship between the two variables (i.e. internal politics and
financial performance. Therefore, an increase in internal politics influences financial performance
negatively. However, when internal politics reach to certain level its effect on financial performance
is positive. From this one can deduce that the lower level politics is back- room dealing on the hidden
agenda for personal gain by members and committee and make them to give a little concern to their
cooperatives which affect performance of negatively. However, when politics in organization full-
grown management committee may give dignity to the members and recognition to their hope and
aspirations, successful bargaining and election of suitable committee members and appointment of
right man power where inevitable. , their financial performance tends to increase.

Figure 4.9, Scatter Plot- internal politics and Financial Performance

4.5.3 Saving culture
The fourth objective of the study was if saving culture affects the financial performance of SACCOs in
Sodo Zuriya woreda. A reliability test, factor analysis, descriptive analysis, correlation analysis,
regression analysis, ANOVA and scatter diagram were done in respect of this variable.
4.5.3.1 Reliability Test for saving culture
The reliability results for saving culture attracted a coefficient of 0.900 and 0.579 hence the statements
were good for analysis as shown in table.
57
Table 4.15 Reliability Test for saving culture
Number Of Items Coefficient Of Composite Reliability Variance Extracted

13 0.900 0.579

4.5.3.2 Descriptive Analysis for Saving Culture

The second objective of the study was to determine if saving culture affect financial performance of
SACCOs in the study area. Results on Table 4.16 indicates that 80.5% of the respondents agreed that
their SACCO has Annual savings target for the members, 54.7 % agreed that Enhancing savings
improves financial performance of SACCO's, 68.7% of the respondents agreed that the survival of
SACCO's is depends on saving and 81.2% agreed that their SACCO's has experience of giving
awards for super savers. Additionally, 68.8% of the respondents agreed personally like saving with the
SACCO, 72.7% agreed that they have Personal annual saving target and 67.9% agreed that SACCO
has Minimum savings rule. In addition, 56.6% agreed that higher savings mean higher dividend,
76.5% agreed that Low borrowing of member is due to low saving levels and 58.7% agreed that High
SACCO savings make SACCO more profitable. 51.6% agreed that Law on minimum savings will
promote growth, 75.8% agreed that SACCO committees encourages huge saving. Finally, 53.1%
agreed that SACCO increased the minimum saving of the last years.

The mean score for the responses was 3.61 which indicate that many respondents agreed with the
statements regarding saving culture. The results revealed that saving culture influenced financial
performance of SACCOs. The findings imply that there was a constant saving culture for the
SACCOs.

The findings were agreed with those in Ortmann and King (2007a) and Birchall (2004) who asserted
that the performance of co-operatives depends on educating and training co-operative members, and
enhancing their knowledge of co-operative principles and members’ rights.

58
Table 4.16. Descriptive Analysis for Saving Culture
 S/agree Agree Neutral Disagree S/
Statement F (%) F (%) F (%) (%) Disagree
F (%)
SACCO has Annual savings target for the member 66(51.6) 37(28.9) 2(1.6) 13(10.2) 10(7.8)
Savings improves financial performance of SACC 49(38.3) 21(16.4) 3(2.3) 28(21.9) 27(21.1)
The survival of SACCO's is depends on saving 31(24.2) 59(46.5) 7(5.5) 12(9.4) 18(14.2)
Our SACCO's has experience of giving awards 58(45.3) 46(35.9 2(1.6) 9(7%) 13(10.2)
I personally like saving with the SACCO 61(47.7) 27(21.1) 11(8.6) 19(14.8) 10(7.8)
I have Personal annual saving target 56(43.8) 37(28.9) 3(2.3) 5(3.9) 27(21.1)
SACCO has Minimum savings rule for SACCO 35(27.3) 52(40.6) 4(3.1) 33(25.8) 4(3.1)
Higher savings mean higher dividend 60(46.9) 11(8.6) 7(5.5) 32(25.0) 18(14.1)
Low borrowing due low saving levels 34(26.6) 60(46.9) 2(1.6) 23(18.0) 9(7.0)
High savings make SACCO more profitable 24(18.8) 51(39.8) 3(2.3) 36(28.1) 14(10.9)
Law on minimum savings will promote growth 58(45.3) 8(6.3) 5(3.9) 44(34.4) 13(10.2)
SACCO committees encourage huge saving 36(28.1) 61(47.7) 2(1.6) 17(13.3) 12(9.4)
SACCO increased the minimum saving limit 20(15.6) 48(37.5) 20(15.6 28(21.9) 11(8.6)
Mean 45(35.2) 40(31.3) 6(4.7) 23(18) 14(10.9)
NB=responses were summarized as (strongly agreed%+ agreed %) = %accepting (agreed on)
statements, S/disagree%+d/agreed%= %of rejecting (disagreed on) statements and by mean (neutral
inclusive)

4.5.3.3 Correlation Analysis- saving culture and Financial Performance.

Correlation analysis was conducted to determine whether a relationship existed between financial
performance and saving culture. Table 4.17. Displays the results of correlation test analysis between
dependent variable (financial performance) and saving culture. The result shows that financial
performance was positively correlated with saving culture with a moderate correlation coefficient of
0.354. This reveals that positive changes in saving culture to improve financial performance.

Table 4.17 Correlation Analysis- Saving Culture and Financial Performance

Variables performance Saving culture
performance Pearson Correlation 1

Sig. (2-tailed)

Saving culture Pearson Correlation 0.354 1

Sig. (2-tailed) 0.000
59
4.5.3.4 Regression Analysis - Saving Culture and Financial Performance.
After testing the normality of data, the result indicates that the data had linear and non-linear
components hence the option to carry out quadratic regression. Regression analysis was conducted to
empirically determine whether saving culture was statistically significant determinant of financial
performance. A regression result in table 4.18 indicates that the goodness of fit for regression between
saving culture and financial performance was satisfactory in linear regression. An R-squared of 0.125
indicate that 12.5% of variances in financial performance SACCOs in Sodo Zuriya are explained by
the variances in saving culture in linear model. The correlation coefficient of 35.4% indicates that the
combined effects of predictor variables had a positive correlation with financial performance.
However the combination of linear and non-linear components. The R-squared improved to 20.3%
which implies that the variance in financial performance of SACCOs is explained by variances in
saving culture. The non-linear addition model is statistically significant with F statistics of 15.932 and
p-value (0.000).

The model being estimated take the forms of FP= β0+ β1SC+ β2SC2 +μ
Where FP= Financial performance SC= Linear composition of saving culture and
SC2 = non- linear composition of saving culture.
The above quadratic model is supported by the scatter plot and line of best fit in figure 4.9 below and
the value of R-square of 0.203 meant that the quadratic model had a stronger explanatory power to the
extent of 20.3% compared to the linear model which gave R-square of 0.125, thus justifying the model
used as shown in table 4.18
Table 4.18: Model Summary - Saving culture, and Financial Performance

Model R R Std. Error R F-Change df1 df2 Sig. F

Square ofthe Square Change
Estimate Change
1 0.354a 0.125 1.27392 0.125 18.082 1 126 0.000
2 0.451b 0.203 1.22092 0.203 15.932 2 125 0.000
a. Predictors: (Constant), Saving culture
b. Predictors: (Constant), Saving culture, Saving culture square

60
4.5.3.5 ANOVA - Saving Culture and Financial Performance.
The overall model significance was presented in Table 4.24 (see annex 9). An F statistic of 15.932
indicated that the combined model was significant. This was supported by a probability value of
(0.000). The reported probability of (0.000) is less than the conventional probability of (0.05).
The probability of (0.000) indicated that there was a very low probability that the statement “overall
model was insignificant” was true, therefore null hypothesis is failed to be accepted and alternative
hypothesis failed to be rejected. Table 4.19 displays the regression coefficients of the independent
variable (saving culture). The results reveal that saving culture is statistically significant in explaining
financial performance of SACCOs in sodo zuriya woreda.
This is supported by (b= -0.342, p value = 0.001). The negative beta explains that the SACCOs
performance reaches a point where it stagnates and tends to go down whether saving culture is
improved or not.
The quadratic model is as summarized as; FP= 2.459+2.665SC -0.342SC2
This implied that the null hypothesis failed to be accepted and the alternative hypothesis failed to be
rejected.
Table 4.19: Regression Coefficient - Saving Culture and Financial Performance
Model B Std. Error T Sig.
1 (Constant) 4.621 0.380 12.155 0.000
Saving culture 0.428 0.101 4.252 0.000
2 (Constant) 2.459 0.718 3.423 0.001
Saving culture 2.665 0.648 4.110 0.000
Saving culture squared -0.342 0.098 -3.490 0.001

4.5.3.6 Scatter Plot - Saving Culture and Financial Performance

Figure 4.10 shows the scatter plot of saving culture and financial performance. The figure reveals that
there was a positive relationship between the two variables. Therefore, an increase in saving culture
affects financial performance positively. However, it is evident that members’ savings can only
influence the financial performance of SACCOs positively up to a certain level, beyond which the
financial performance tends to decrease whether saving culture is improved or not.

61
 .
Figure 4.10 Scatter Plot - Saving Culture and Financial Performance
4.5.4 Liquidity management
The fifth objective of the study was if liquidity management affects the financial performance of
SACCOs in Sodo Zuriya woreda. A reliability test, factor analysis, descriptive analysis, correlation
analysis, regression analysis, ANOVA and scatter diagram were done in respect of this variable.
4.5.4.1 Reliability Test for Liquidity Management
The reliability results for liquidity management attracted a coefficient of 0.864 and 0.586 hence the
statements were good for analysis as shown in table.
Table 4.20. Reliability Test for liquidity management
Number of items Composite reliability Variance extracted

12 0.864 0.586

4.5.4.2. Descriptive statistics for liquidity management

The fifth objective of the study was to determine if liquidity management affects financial
performance of SACCOs in the study area. Results on Table 4.21 indicated 68.75% of respondents
agreed that their SACCOs maintained optimal cash balance, 75.0% of respondents agreed that their
SACCO prepared to make immediate payment for members deposit when member need to exit and
SACCO made immediate payment for members’ voluntary saving account.

62
In addition to 80.46% of respondents agreed up on the statement “In general annual meeting their
SACCO present current assets held” and 75.78% of respondents agreed there is restricted credit
follow up in our SACCOs as well as 77.35% of respondents agreed that the number of defaulters were
minimized by SACCO for the last years. 68.75% of respondents agreed that as they are interested to
save on SACCO for it is possible to exit at with paid benefits. In contrary, 61.7% of respondents
disagreed that Other SACCOs are better than our SACCO credit Supply to their members. 64.84% of
respondents agreed that all current assets held by our SACCOs are easily marketable and 78.12% of
respondents agreed that there is minimum time lag for loan approval due to high loan turnover in our
SACCO. Finally, 73.43% of respondents agreed that the higher the liquidity the higher profit and
71.80% of respondents Credit committee evaluates Borrowers in terms of their repaying capacity.

To sum up, the mean score for the responses was 3.83 which indicate that many employees agreed
with the statements regarding liquidity management. The results point out that liquidity management
affected financial performance of SACCOs. The findings imply that the SACCOs liquidity
management strategies were functional.

The findings agreed with that in Huseyin (2011) asserts, managers have an incentive to hoard cash to
increase the amount of assets under their control and to gain discretionary power over the firm
investment decisions. Also the findings agreed with the that in (Erkki, 2004) who argued the
determination of the amount of buffer money to hold is seen as an investment decision.

63
 Table 4.21. Descriptive statistics for liquidity management
Statement S/Agree Agree Neutral Disagree S/
F (%) F (%) F (%) F (%) Disagree
F (%)
Our SACCOs maintained optimal cash balance 53 (41.4) 35(27.3) 9(7.0) 21(15.) 10 (7.6)
Our SACCO prepared to make immediate payment 64(50.0) 32 (25.0) 12(9.4) - 20(15.6
Our SACCO made immediate payment for 51 (38.6) 45(34.1) - 10(7.6) 22(16.7
In general annual meeting Our SACCO present 88(68.8) 14(11) - 5 (3.9) 19(14.8
There is restricted credit follow up in our SACCOs 83(64.8) 14(10.9) 2(1.6) 18(14.1 11 (8.6)
The number of defaulters in our were minimized 72(56.3) 27(21.1) 8(6.3) 10(7.8) 11(8.6)
I am interested to save on SACCO 53(41.4) 35(27.3) 5 (3.9) 23(18.0 12 (9.4)
Other SACCOs are better than our SACCO credit 30(22.7) 19(14.4) - 49(37.1 30(22.7)
All current assets held by our SACCOs are liquid 52 (40.6) 31(24.2) 4(3.1) 22(17.2 19(14.8)
There is minimum time lag for loan approval 88 (68.8) 12 (9.4) - 8 (6.3) 20(15.6)
The higher the liquidity the higher profit 77(60.2) 17(13.3) 5(3.9) 9 (7.0) 20(15.6)
Credit committee evaluates Borrowers in terms of 67(52.3) 25(19.5) 9 (7.0) 19(14.8 8 (6.3)
Mean 65(50.7) 26(20.3) 4(3.1) 16(12.5 17(13.3)
NB=responses were summarized as (strongly agreed%+ agreed %) = %accepting (agreed on)
statements, S/disagree%+d/agreed%= %of rejecting (disagreed on) statements and by mean (neutral
inclusive)

4.5.4.3 Correlation Analysis- liquidity management and Financial Performance. .

Correlation analysis was conducted to determine whether a relationship existed between financial
performance and liquidity management. Table 4.22 displays the results of correlation test analysis
between dependent variable (financial performance) and liquidity management. The result shows that
financial performance was positively correlated with liquidity management with a weak correlation
coefficient of 0.213. This reveals that positive changes in liquidity management to improve financial
performance.

64
Table 4.22 Correlation Analysis- liquidity management and Financial Performance.
Variable performance liquidity management
Performance Pearson Correlation 1
Sig. Sig. (2-tailed)
liquidity management Pearson Correlation 0.213 1
Sig. Sig. (2-tailed) 0.016
4.5.4.4 Regression Analysis – liquidity management and financial performance
After testing the normality of data, the result indicates that the data had linear and non-linear
components hence the option to carry out quadratic regression. Regression analysis was conducted to
empirically determine whether liquidity management was statistically significant determinant of
financial performance. A regression result in table 4.23 indicates that the goodness of fit for regression
between liquidity management and financial performance was satisfactory in linear regression. An R-
squared of 0.045 indicate that 4.5% of variances in financial performance SACCOs in Sodo Zuriya are
explained by the variances in liquidity management in linear model. The correlation coefficient of
21.3% indicates that the combined effects of predictor variables had a positive correlation with
financial performance. However the combination of linear and non-linear components R-squared
improved to 13.1% which implies that the variance in financial performance of SACCOs is explained
by variances in liquidity management. The non-linear addition model is statistically significant with F
statistics of 9.428 and p-value (0.000).
The model being estimated take the forms of FP= β0+ β1Lm+ β2Lm2 +μ
Where FP= Financial performance Lm= Linear composition of liquidity management and
Lm2 = non- linear composition of liquidity management

The above quadratic model is supported by the scatter plot and line of best fit in figure 4.9 below and
the value of R-square of 0.203 meant that the quadratic model had a stronger explanatory power to the
extent of 13.1% compared to the linear model which gave R-square of 0.045, thus justifying the model
used as shown in table 4.23

65
Table 4.23: Model Summary - Liquidity Management and Financial Performance.
R Std. Error of
R Square the Estimate R-Square F Change df1 df2 Sig.F
Change Change
0.213a 0.045 1.331121 0.045 5.974 1 126 0.016
0.362b 0.131 1.274961 0.131 9.428 2 125 0.000
a
Predictors : (Constant), liquidity management
b.predictors: (Constant), liquidity management, liquidity management squared
4.5.4.5. ANOVA – Liquidity Management and Financial Performance
The results reveal that liquidity management is statistically significant in explaining financial
performance of SACCOs in Sodo Zuriya Woreda. An F-statistic of 9.428 reveals that the combined
model was significant. This was supported by a probability value of (0.000). The reported probability
of (0.000) is less than the conventional probability of (0.05) thus the combination of linear and non-
linear was significant (see annex 10). Table 4.24 displays the regression coefficients of the
independent variable (Liquidity management). The results reveal that Liquidity management is
statistically significant in explaining financial performance of SACCOs in Sodo Zuriya woreda. This
is supported by (b= -0.319, p- value = 0.000). The positive beta explains that the increase in SACCOs
performance reaches a point where it stagnate and tends to fall whether Liquidity are managed or not.
This is summarized in the regression model below;
FP= 2.767+2.240LM-0.319LM2
This reveals that the null hypothesis failed to be accepted and the alternative hypothesis failed to be
rejected.
Table 4.24 Regression coefficient- Liquidity Management and Financial Performance
Model B Std. Error T Sig.
1 (Constant) 5.283 0.379 13.934 0.000
Liquidity management 0.230 0.094 2.444 0.016
2 (Constant) 2.767 0.803 3.446 0.001
Liquidity management 2.240 0.579 3.868 0.000
Liquidity management squared. -0.319 0.091 -3.513 0.001
a. Dependent Variable: Financial performance
66
4.5.4.6. Scatter Plot- Liquidity Management and Financial Performance
Figure 4.11 shows the scatter plot of Liquidity management and financial performance. The figure
reveals that there was a positive relationship between the two variables (i.e. Liquidity management and
financial performance. Therefore, an increase in liquidity management influences financial
performance positively. However, it is evident that if the liquidity is beyond optimal level, eventually
financial performance tends to decrease.

4.11. Scatter Plot- liquidity management and Financial Performance

4.5.5. Operating cost
The sixth objective of the study was if operating costs affects the financial performance of SACCOs in
Sodo Zuriya woreda. A reliability test, factor analysis, descriptive analysis, correlation analysis,
regression analysis, ANOVA and scatter diagram were done in respect of this variable.
4.5.5.1 Reliability Test for operating cost
The reliability results for operating cost attracted a coefficient of 0.849 and 0.688 hence the statements
were good for analysis as shown in table.

68
Table. 4.24 Reliability Test for operating cost
 Number of items Composite reliability Variance extracted
12 0.849 0.688

4.5.5.2. Descriptive Analysis for Operating Cost

The sixth objective of the study was to examine whether operating costs influences the financial
performance of SACCOs in Sodo Zuriya. The results as indicated in Table 4.24 showed that 64.1% of
the respondents agreed that Salary is a major cost to our SACCO, 75.1% agreed Loan recovering is a
major cost to Our SACCO and 55.5% agreed that interest on member deposits was a major cost to
their SACCO. Furthermore, 75.8% agreed that committee allowance was a major cost to their
SACCO, 58.5% agreed that annual general meeting was a major cost to their SACCO and 78.5 %
agreed that deposit mobilization cost is a major cost to our SACCO. In addition to, 71.85% of the
respondents agreed that regulatory requirements were a major cost to their SACCO, 73.4% agreed that
if the Committee members control expenses of the SACCO there would be more profits for the
SACCO and 71% agreed that the supervisory committee can assist in checking areas where SACCO
expenses can be reduced. Finally 72.6% agreed that printing and stationary for their SACCO, 51.6%
disagreed that expenses of their SACCO were well controlled and were at optimal levels and 79%
agreed that cost of the SACCO operations were a major determinant of profitability.

The mean score for operating cost was 3.71 which indicates that majority of the respondents agreed
that there were high operating costs for the SACCOs. The findings imply that the strategic measures
those SACCOs put in place to manage use of funds were weak hence operating costs were unchecked.

The findings agree with those in Asogwa et al. (2011) who observed that high level of cost
inefficiency is highly attributable to the low profitability that results from inadequate organization of
farmers into collective farmers’ institutions that can provide opportunities for risk sharing and
improved bargaining power.

The finding further agreed with those Mumanyi (2014) in Kenya on the challenges facing SACCOs in
Mombasa County indicated that the high cost of administration, the management of small loans and
the high interest rate of borrowing so as to lend to members were hindering the growth of SACCOs.

69
It further argued that due to the environment SACCOs operate there are inefficient and non-functional
infrastructure facilities which led to increase in the cost of operation.

The findings also disagree with those of Ward and McKillop (2005) who asserted that the impact of a
common bond on co-operatives performance provides additional perspective on the size of credit co-
operatives in India. Performance of a credit union depends on the strength of common bond among
members. They also found a favorable impact of occupation-based commonality on the performance
of credit unions, as commonality of occupation suggests tighter bonds and reduces operating costs

Table 4.24; Descriptive Analysis for Operating Cost

S/Agree Agree Neutral Disagree S/

Statement F (%) F (%) F (%) F (%) Disagree
F (%)
Salary is a major cost to our SACCO. 64(50.8) 17(13.3) 5(3.9) 18(14) 22(16.1)
Loan recovering is a major cost to Our SACCO. 79(61.7) 18(14) 2(1.6) 9(7.5) 20(16.6)
Interest on member deposit is a major 30 (23.4) 41 (32) 1(0.8) 18(14.1) 37(30)
Committee allowance is a major cost to our 90(70.3) 7 (5.5) - 7(5.4) 24(18.7)
Annual general meeting is a major cost 51(39.8) 24(18.75 1(0.8) 30(23.4) 22(17.2
Deposit mobilization cost is a major cost 68(53.1) 33(25.75 - 13(10.15 14(11)
The regulatory requirements are a major cost 77(60.15 15(11.7) 3(2.3) 8(6.3) 25(19.5)
If the Committee members control expenses of 80(62.5) 14(10.9) 1(0.8) 13(10.15 20(15.6)
The control committee can assist in checking 73(57.0) 18(14.1) - 16(12.5) 21(16.4)
Printing and stationary are a major expense 74(57.8) 19(14.8) 1(0.8) 10(7.8) 24(18.75
Expenses of our SACCO are well controlled 45(35.5) 9(7.0) 5(3.9) 43(33.5) 26(20.3)
Cost of the SACCO operations are a major deter 81(63.3) 14(10.9) - 7(5.5) 26(20.3)
Mean 68(53.4) 18(14.3) 1(0.8) 13(10.15) 28(21.7)
NB=responses were summarized as (strongly agreed%+ agreed %) = %accepting (agreed on)
statements, S/disagree%+d/agreed%= %of rejecting (disagreed on) statements and by mean (neutral
inclusive)

4.5.5.3. Correlation Analysis- operating costs and Financial Performance.

Correlation analysis was conducted to determine whether a relationship existed between financial
performance and operating costs. Table 4.25 displays the results of correlation test analysis between
dependent variable (financial performance) and operating costs. The result shows that financial
performance was negatively correlated with operating costs with a weak correlation coefficient of -
0.219. This reveals that positive changes in operating costs to slow down financial performance.
 70

Table 4.25. Correlation Analysis- operating costs and Financial Performance.

Variable performance Operating cost
Performance Pearson Correlation 1
Sig. Sig. (2-tailed)

Operating cost Pearson Correlation -0.219 1

Sig. Sig. (2-tailed) 0.013
4.5.5..4.Regression Analysis – Operating Cost and Financial Performance
After testing the normality of data, the result indicates that the data had linear and non-linear
components hence the option to carry out quadratic regression. Regression analysis was conducted to
empirically determine whether operating cost was statistically significant determinant of financial
performance. A regression result in table 4.26 indicates that the goodness of fit for regression
between operating cost and financial performance was satisfactory in linear regression. An R-squared
of 0.048 indicate that 4.8% of variances in financial performance SACCOs in Sodo Zuriya are
explained by the variances in operating costs in linear model. The correlation coefficient of 21.9%
indicates that the combined effects of predictor variables had a negative correlation with financial
performance. However the combination of linear and non-linear components R-squared improved to
35% which implies that the variance in financial performance of SACCOs is explained by variances
in operating costs.
The non-linear addition model is statistically significant with F statistics of 33.637 and p-value
(0.000).

The model being estimated take the forms of FP= β0+ β5OC+ β5OC2 +μ
Where FP= Financial performance, OC= Linear composition of operating cost and
OC2 = non linear composition of operating cost.
The above quadratic model is supported by the scatter plot and line of best fit in figure 4.9 below and
the value of R-square of 0.350 meant that the quadratic model had a stronger explanatory power to
the extent of 35% compared to the linear model which gave R-square of 0.048, thus justifying the
model used as shown in table 4.26
 71
Table 4.26: Model Summary – Operating Cost and Financial Performance.
R R Std. Error of
Square the R Square F Change df1 df2 Sig.
Estimate Change F Change
0.219a 0.048 1.3292216 0.048 6.343 1 126 0.013
0.592b 0.350 1.1027765 0.350 33.637 2 125 0.000
Dependent Variable: Financial performance, a Predictors : (Constant), operating cost
p
redictors: (Constant), operating cost, operating cost squared
4.5.5.6.ANOVA – Operating cost and Financial Performance
Table 4.27 displays the regression coefficients of the independent variable (operating cost). The results
reveal that operating cost is statistically significant in explaining financial performance of SACCOs
in Sodo Zuriya Woreda. An F-statistic of 33.637 indicated that the combined model was significant.
This was supported by a probability value of (0.000). The reported probability of (0.000) is less than
the conventional probability of (0.05) thus the combination of linear and non-linear was significant
(see annex 11).
This is supported by (b= 0.623, p- value = 0.000). The positive beta explains that the decline in
SACCOs performance reaches a point where it stagnate and tends to raise whether operating costs are
managed or not.
This is summarized in the regression model below;
FP= 4.915 -3.946OC+ 0.623OC2
This reveals that the null hypothesis failed to be accepted and the alternative hypothesis failed to be
rejected.
Table 4.27 Regression coefficients- Operating cost and Financial Performance
Model B Std. Error T Sig.
1 (Constant) 7.003 0.353 19.835 0.000
Operating cost -0.226 0.090 -2.519 0.013
2 (Constant) 4.915 0.401 12.254 0.000
Operating cost -3.946 0.494 -7.990 0.000
Operating cost squared. 0.623 0.082 7.620 0.000
a. Dependent Variable: Financial performance
 72
4.5.5.6. Scatter Plot - Operating cost and Financial Performance
Figure 4.12 shows the scatter plot of operating cost and financial performance. The figure reveals that
there was a negative relationship between the two variables (i.e. operating cost and financial
performance. Therefore, an increase in operating costs influence financial performance negatively.
However, it is evident that if the operating costs are checked, eventually financial performance tends
to increase.

Figure ,4.12. Scatter Plot -Operating cost and Financial Performance

4.5.6 Financial Reporting
The seventh objective of the study was if financial reporting affects the financial performance of
SACCOs in Sodo Zuriya woreda. A reliability test, factor analysis, descriptive analysis, correlation
analysis, regression analysis, ANOVA and scatter diagram were done in respect of this variable.
4.5.6.1 Reliability Test for Financial Reporting
The reliability results for financial reporting attracted a coefficient of CR and AVE were 0.793 and
0.424 respectively, hence the statements were good for analysis as shown in table.
Table 4.28. Reliability Test for financial reporting
Number of items Composite reliability Variance extracted
12 0.793 0.424
 73
4.5.6.2. Descriptive Statistics for Financial Reporting
The seventh objective of the study was to determine if financial reporting affect financial performance
of SACCOs in the study area. Results on Table 4.29 indicate 72.65% of respondents disagreed that
Our SACCO frequently informs the financial progress to the members. 82.03% of respondents
disagreed as they have experience of attending annual meeting to hear audit report. In addition,
84.37% of respondents are disagreed that when auditor present audit report for general meeting it
reveals the strength of record keeping and the same proportion of disagreed that Our SACCOs
accountant is well experienced. 58.59% of respondents disagreed there is strong SACCO reporting
follow up by promotion office and 72.65% of respondents disagreed that there is strong SACCO
reporting follow up by promotion office. Furthermore, 74.21% of respondents disagreed that our
SACCO communicates financial performance report to the members semi-annually and also 71% of
respondents disagreed our SACCO budget is approved by general meeting. Moreover, 48.4% of
respondents agreed that Other SACCO’s members have better financial information than members in
Our SACCO and also 55.46% of respondents were agreed that Our SACCO financial performance is
less, due to poor financial reporting. Likewise 75.78% of respondents disagreed that Our SACCO
provides financial report to relevant users only. Finally, 60.15% of respondents disagreed that our
book of account is not disclosed by our SACCO for un authorized outsiders. . The mean score of the
responses for this section was 2.32 indicating that more employees disagreed that SACCOs had strong
financial reporting culture. The findings imply that the SACCOs had bad financial reporting culture.
Thus financial performance of SACCOs was not improved from time to time.

The findings are similar with those in (WOCCU, 2011) the quality of decisions made depends on the
quality of the underlying information that forms the basis of that decision making. It further agreed
that in order for the reports to be believed by various users, it is important that an independent person
(external auditor) audits the reports and confirm that they represent a true picture of the business. The
finding is agreed with that in (Martina M.et al, (2015)) conducted research to investigate the
relationship between informational usefulness of the net income and share price. They concluded that
reporting accounting results are significantly associated with share price increased value usefulness for
investor on Romanian financial market. Furthermore the finding agreed with that in ( Abor and
Biekpe, 2006), financial report is useful to existing and potential investors and creditors and other
users in making rational investment decisions.
 74

They further argued that access to information is a greater challenge to obtain, as sources of
information on firms, the competitive posture of market players, and market size and growth rates are
more difficult to find.

Table 4.29 Descriptive statistics for financial reporting

Statement. S/Agree Agree Neutral Disagree S/
(% F (%) (F (%) F (%) Disagree
F (%)
Our SACCO frequently informs the financial prog. 18(14.1 6(4.7) 11(8.6) 50(39.1 43(33.6
I have experience of attending annual meeting to 8(6.3) 9(7.0) 6(4.7) 66(51.6 39(30.5
When auditor present audit report for general G/M 3(2.3) 14(10.9 3(2.3) 57(44.5 51(39.8)
Our SACCOs accountant is well experienced 6(4.7) 13(10.2 1(0.8) 55(43.0 53(41.4
There is strong SACCO reporting follow up 20(15.6 21(16.4 12(9.4) 25(19.5 50(39.1
Our SACCO communicates financial performance 14(10.9 16(12.5 5(3.9) 47(36.7 46(35.9
Our SACCO budget is approved by G/M 8(6.3) 17(13.3 8(6.3) 51(39.8 44(34.4
Currently Our SACCO is in better position by .. 6(4.7) 8(6.3) 23(18.0 39(30.5 52(40.6)
Other SACCO’s members have better financial 12(9.4) 50(39.1 9(7.0) 35(27.3 22(17.2)
Our SACCO financial performance is less, due to 10(7.8) 61(47.7 8(6.3) 40(31.3 9(7.0)
Our SACCO provides financial report to relevant 18(14.1 5(3.9) 8(6.3) 70(54.7 27(21.1

Our book of account is not disclosed by our 5(3.90 30(23.4 16(12.5 36(28.1 41(32.0)
Mean 11(8.5) 21(6.3) 9(7.16) 47(37.17 40(31.05)
NB=responses were summarized as (strongly agreed%+ agreed %) = %accepting (agreed on)
statements, S/disagree%+d/agreed%= %of rejecting (disagreed on) statements and by mean (neutral
inclusive)

4.5.6.3. Correlation Analysis- Financial Reporting and Financial Performance

Correlation analysis was conducted to determine whether a relationship existed between financial
performance and financial reporting. Table 4.30 displays the results of correlation test analysis
between dependent variable (financial performance) and financial reporting. The result shows that
financial performance was positively correlated with financial reporting with a moderate correlation
coefficient of 0.301. This reveals that positive changes in financial reporting to lift-up financial
performance. 75

Table 4.30 Correlation Analysis – Financial Reporting and Financial Performance

Variable performance Financial Reporting

Performance Pearson Correlation 1
Sig. Sig. (2-tailed)
Financial Reporting 0.301 1
0.001
4.5.6.4. Regression Analysis - Financial Reporting and financial performance
After testing the normality of data, the result indicates that the data had linear and non-linear
components hence the option to carry out quadratic regression. Regression analysis was conducted to
empirically determine whether financial reporting was statistically significant determinant of financial
performance. A regression result in table 4.31 indicates that the goodness of fit for regression between
financial reporting and financial performance was satisfactory in linear regression. An R-squared of
0.090 indicate that 9% of variances in financial performance SACCOs in Sodo Zuriya are explained
by the variances in financial reporting in linear model. The correlation coefficient of 30.1% indicates
that the combined effects of predictor variables had a positive correlation with financial performance.
However the combination of linear and non-linear components R-squared improved to 22.2% which
implies that the variance in financial performance of SACCOs is explained by variances in financial
reporting. The non-linear addition model is statistically significant with F statistics of 17.835 and p-
value (0.000).
The model being estimated takes the form of FP= β0+ β61FR+ β6FR2 +μ
Where FP= Financial performance, FR= Linear composition of financial reporting and
FR2 = non linear composition of financial reporting.
The above quadratic model is supported by the scatter plot and line of best fit in figure 4.9 below and
the value of R-square of 0.222 meant that the quadratic model had a stronger explanatory power to the
extent of 22.2% compared to the linear model which gave R-square of 0.090, thus justifying the model
used as shown in table 4.31.
 76

Table 4.31: Model Summary - Financial Reporting and Financial Performance.

R R Std. Error of
Square the R Square F df1 df2 Sig.
Estimate Change Change F Change
0.301a 0.090 1.29927 0.090 12.516 1 126 0.001

0.471b 0.222 1.20637 0.222 17.835 2 125 0.000

Dependent Variable: Financial performance
a
Predictors : (Constant), Financial Reporting
b
Predictors: (Constant), Financial Reporting, Financial Reporting Squared
4.5.6.5.ANOVA – Financial reporting and Financial Performance.
Table 4.32 displays the regression coefficients of the independent variable (financial reporting).
The results reveal that financial reporting was statistically significant in explaining financial
performance of SACCOs in Sodo Zuriya Woreda. An F-statistic of 17.835 indicated that the combined
model was significant. This was supported by a probability value of (0.000). The reported probability
of (0.000) is less than the conventional probability of (0.05) thus significant (see annex 12). This is
supported by (b= -0.851, p- value = 0.000). The negative beta explains that increase in SACCOs
performance reaches a point where it be idle and tends to fall whether SACCOs improve financial
reporting or not.
This is summarized in the regression model below;
FP= -0.908+5.174FR-0.851FR2
This implied that the null hypothesis failed to be accepted and the alternative hypothesis failed to be
rejected.
Table 4.32 Regression coefficient- – Financial reporting and Financial Performance
Model B Std. Error T Sig.
1 (Constant) 4.687 0.433 10.819 0.000
Financial Reporting 0.639 0.181 3.538 0.001
2 (Constant) -0.908 1.281 -0.708 0.480
Financial Reporting 5.174 1.000 5.173 0.000
Financial Reporting squared -0.851 0.185 -4.599 0.000
 a. Dependent Variable: Financial performance
77

4.5.6.8.6. Scatter Plot- Financial reporting and Financial Performance

Figure 4.12 shows the scatter plot of financial reporting and financial performance. The figure reveals
that there was a positive relationship between the two variables (i.e. Financial Reporting and financial
performance). Therefore, an increase in financial reporting affects financial performance positively.
However, it is evident that when financial reporting reach to certain level, it becomes inclusive of
irrelevant users and their financial performance tends to diminish.

Figure 4.12. Scatter Plot -Financial reporting and Financial Performance

4.6.

A multiple regression analysis was conducted to investigate the joint causal relationship between the
independent and dependent variables. Regression results in Table 4.33 indicated that the goodness of
fit for the regression of independent variables and financial performance is satisfactory in the linear
model. An R squared of (0.472) indicated that (47.2%) of the variances in financial performance are
explained by the variances in the determinants of financial performance (competition, internal politics,
saving culture, liquidity management, operating costs and financial reporting). However, with the
combination of linear and non- linear components the R square improved to 0.736 (73.6%) which
implies that the variances in financial performance of SACCOs Sodo Zuriya Woreda are explained by
78

the variances in the determinants of financial performance (competition, internal politics, saving
culture, liquidity management, operating costs and financial reporting). The non- linear addition model
is statistically significant with an F statistics of 26.729 and P- value (0.000)

The non- linear regression equation is as follows;

FP = β0 + β1CT +β2CT2+ β3IP + β4IP 2+ β5SC+β6SC2+β7LM+β8LM2+β9OC+ β10OC2+ β11FR+

β12FR2+ Є
Where, FP= Financial Performance (dependent variable) , β0 = Y Intercept, Є = Error term,
CT = linear composition of competition from Omo MFI, CT2 = non-linear composition of competition
from Omo MFI, etc.
After regression the model took this form:
2
FP= -0.461-0.795CT +0.691CT -0.142IP -0.012IP2 + 1.383SC -0.151SC2+0.834LM -0.139LM 2-
1.441OC + 0.221OC 2 +4.741FR -0.8201FR2.
4.6.1 Correlation Analysis for the Overall Model
The results of the correlation analysis for the overall model are as shown in table 4.33. A correlation
coefficient of 0.858 indicated that there was a strong correlation between financial performance and all
the predictor variables (competition, internal politics, saving culture, liquidity management, operating
costs and financial reporting) taken jointly. An R- square value of 0.736 indicated that 73.6% 0f the
variations in the financial performance of SACCOs could be explained by variations in the predictor
variables. The results also indicated that the predictors were significant with a F statistics of 26.729
and p- value of (0.000).
Table 4.33: Model Fit for Financial Performance
R R Std. Error of
Square the R Square F df1 df2 Sig.
Estimate Change Change F Change
0.687a 0.472 1.01035736 0.472 18.012 6 121 0.000
b
0.858 0.736 0.73256384 0.736 26.729 12 115 0.000
Dependent Variable: Financial performance
a
Predictors : (Constant), linear compositions b Predictors: (Constant), linear and non-linear
 79
4.6.2 ANOVA for the Overall Model
The results indicated that the overall model was significant, that is, the independent variables were
good joint explanatory variables/determinants for financial performance (F=26.729, P value =0.000)
(see annex 13).

4.6.3 Model Summary and Parameter Estimate.

Regression results in Table 4.34 indicated that the relationship between financial performance and
competition was negative and significant (b1= -0.445, p value, 0.000). This implies that an increase in
competition by 1 unit leads to reduce financial performance of SACCOs by 0.445 units.
The results further indicated that the relationship between financial performance and internal politics
was negative and significant (b1= -0.404, p value, 0.000). This implies that an increase in the internal
politics by 1 unit leads to diminish financial performance by 0. 404units. However, the results further
indicated that the relationship between financial performance and saving culture was positive and
significant (b1= 0.621, p-value, 0.000). This implies that an increase in saving culture by 1 unit leads
to an increase or improved financial performance by 0.621 units. The results indicated that the
relationship between Liquidity management and financial performance was positive and insignificant.
Furthermore, the result revealed the relationship between operating cost and financial performance had
negative and significant (b1= -0.170 p-value, 0.021).This implies that an increase in saving culture by
1 unit leads to decrease financial performance by 0.17 units. Table 4.49- Model summary and
parameter estimates finally, the result indicated the relationship between financial reporting and
financial performance had positive and significant (b1= 0.498, p-value, 0.002).This implies that an
increase in saving culture by 1 unit leads to improved financial performance by 0.498 units

Model B Std. Error 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
2 Constant -0.461 1.662 -0.278 0.782
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

Table 4.34 Model summary and parameters estimate

4.6.4 Optimal Model
A multiple regression analysis was conducted to investigate the joint causal relationship between the
independent and dependent variables. A regression result in Table 4.37 indicates that the goodness of
fit for the regression of independent variables and financial performance is satisfactory. An R squared
of(0.729) indicated that (72.9%) of the variances in financial performance are explained by the
variances in the determinants of financial performance ( linear composition of Competition , Internal
Politics, Saving Culture, Operating Cost and Financial Reporting and non-linear composition of
competition ,saving culture, operating cost and financial reporting ).
The non- linear regression equation is as follows;
Y = β0+ β1CT+β2CT 2 + β3IP+ β4SC + β5SC2+ β6OC +β7OC2+ β8FR + β9FR2+Є
Y= Financial Performance,
β1CT= linear composition of competition
β2CT 2 = Non-linear composition of competition
β3IP= Linear composition of internal politics
β4SC =Linear composition of saving culture
81
β5SC2=Non-linear composition of saving culture
β6OC = Linear composition of operating cost
β7 OC2=Non-linear composition operating cost
β8FR =Linear composition of financial reporting
β9FR 2 =Non-linear composition of financial reporting
After regression the model took this form
FP=0.297-0.850CT+0.708CT2-0.224IP+2.012SC-0.255SC2-1.480OC+0.228OC2+4.738FR-0.825FR12

Table 4.37: Model Fit for Financial Performance (Optimal Model)

Indicators Coefficients
R 0. 854
R- square 0.729

Std. Error of the Estimate 0.7333

4.5.5. ANOVA for Financial Performance (Optimal Model)

ANOVA results were presented in Table 4.38. The results indicated that the overall model was
significant, that is, the independent variables were good joint explanatory variables/determinants for
financial performance (F=35.625, P value =0.000).
Table 4.38: ANOVA for Financial Performance (Optimal Model)
Model Sum of Squares df Mean Square F Sig.
1 Regression 164.964 8 20.620 35.625 0.000
Residual 68.880 119 0.579
Total 233.843 127
a. Dependent Variable: Financial performance b. Predictors: (Constant), Competition ,
Saving Culture, Operating Cost and Financial Reporting, competition squared ,saving culture
squared, operating cost squared and financial reporting squared
4.6.6. Optimal Model Summary and Parameter Estimate
Regression results in Table 4.39 indicated that the relationship between financial performance and
competition was negative and significant (b1= -0.850, p value, 0.000).
This implies that an increase in competition by 1 unit leads to reduce financial performance by 0.850
units. Results further indicates that the relationship between financial performance and internal politics
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was negative and significant (b1= -0.224, p value, 0.002). This implies that an increase in internal
politics by 1 unit leads to decrease financial performance by 0.224 units. In addition to the result
indicate that the relationship between saving culture and financial performance was positive and
significant (b1= 2.012, p value, 0.000). This implies that 1unit positive change in saving culture leads
to improve financial performance by 2.012units. The result further indicates that the relationship
between financial reporting and financial performance was positive and significant (b1= 4.738, p
value, 0.000). This shows that 1 unit increase in financial reporting leads to improve financial
performance by 4.738 units. However, the result indicated that while non-linear composition of saving
culture and financial reporting had a negative and significant relationship with financial performance,
non- linear combination of competition and operating cost had positive and significant relation with
financial performance.
Table 4.39: Optimal Model Summary and Parameter Estimate
Model B Std. Error T Sig.
(Constant) 0.297 1.297 0.229 0 .819
Competition from Omo MFI -0.850 0.153 -5.544 0.000
Internal Politics -0.224 0.071 -3.176 0.002
Saving Culture 2.012 0.426 4.719 0.000
Operating Cost -1.480 0.403 -3.669 0.000
Financial Reporting 4.738 0.675 7.023 0.000
Competition from OMFI squared 0.708 0.118 5.987 0.000
Saving culture squared -0.255 0.065 -3.909 0.000
Operating Cost squared 0.228 0.066 3.471 0.001
Financial Reporting squared -0.825 0.126 -6.556 0.000

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 CHAPTER FIVE

5. SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction.
This chapter presents the summary of major finding of the study, relevant discussions, conclusions and
the necessary recommendations. The study was carried out to determine the effect of competition from
omo MFI, internal politics, saving culture liquidity management operating costs and financial
Reporting on the financial performance of SACCOs in sod zuriya woreda
5.2 summary of the findings
5.2.1 Financial performance
The first objective of the study was to determine financial performance SACCOs in sodo zuriya
woreda descriptive statistics regression analysis and ANOVA were conducted. The result indicated
that there was increased absolute financial performance of SACCOs across the years. Specifically,
increased profit, increased total asset and increased number of loan disbursed and increased deposit
collected from the members in absolute accounting figure but the rate of return was decreased this is
further translated into low operational efficiency of SACCOs in the study area.
5.2.2 Competition and Financial performance
The second objective of the study was to determine if competition from Omo MFI affect financial
performance of SACCOs in the study area. Various methods were used to arrive at the finding. These
methods included descriptive statistics; parametric analysis and regression analysis were carried out.
The findings indicated that there was low competition from the Omo MFI. This observation was
arrived at since the respondents disagreed that micro finance are a great threat to survival of their
SACCOs, Omo micro finances saving products preferred to their SACCO products, loans from micro-
finance are more attractive than loans from their SACCO, collateral requirement by OMF was better
than SACCO’s interest rate on loans of micro-finance was better than that of the SACCO customer
service of OMF was better than our SACCO, omo work on extreme deposit mobilization, entrance fee
in omo microfinance has better, Omo has good will in community than SACCO,SACCOs depend s on
micro finance and omo micro finances has better experience in rural financing than SACCO.
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It can be concluded from this study that there exists negative significant relationship between
Competition from omo MFI and financial performance of the SACCOs. The result reveals that
competition is statistically significant in explaining financial performance of the SACCOs. This
implied that there null hypothesis there is no relationship between competition from omo MFI and
financial performance of SACCos in sodo zuriya,failed to be accepted and the alternative hypothesis
failed to be rejected.
5.2.3 Internal politics and Financial performance
Third objective of the study was to find out if internal politics affect financial performance of
SACCOs in the study area. The result indicates that the SACCOs had weak policies in place to handle
internal politics hence there was bad management of internal politics .This observation was arrived at
in view of the fact that the respondents agreed SACCO have members who are politicians, internal
politics influence the approval of loans, election of SACCO is not as per by-law, general meetings are
normally disorganized, appointments of officials is rarely transparent, interference of political persons
has affected the profitability, members of their SACCO are leaving due to internal politics,
management decision are rarely objective, informal groupings exists in their SACCO, management
committee is hardly dependent, selfish interests influence voting and politics of other SACCos spill
over their SACCO.
It can be concluded from this study that there exists a negative significant relationship between
internal politics and financial performance of SACCOs. The result reveal that internal politics
management is statically significant in explaining financial performance of the SACCCs. This implied
that the null hypothesis that there is no relationship between internal politics and financial
performance of SACCO, failed to accepted and the alternative hypothesis failed be rejected
5.34 Saving culture and financial performance
The fourth objective of the study was to examine if saving culture influence financial performance of
SACCOs the study sought to find out the extent which saving culture influence financial performance
of SACCOs in the study area.
The study concludes that there was good saving culture of the SACCOs.
This is because respondents like to save in their SACCO, Member have their own annual saving
target, SACCO fixed minimum saving rule SACCOs, increased minimum saving amount, the
SACCOOs have annual saving target, and SACCOs deposit were increased across the year.
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It can be concluded from this study that there exists a positive and significant relationship between
saving culture and financial performance of SACCOs. This implies that managing saving culture in
SACCOs was statistically significant in explaining financial performance of SACCOs sodo zuriya
woreda. This implied that the null hypothesis that there is no relationship between saving culture and
financial performance of SACCOs failed to be accepted and the alternative hypothesis failed to be
rejected.
5.3.4 Liquidity Management and Financial Performance
The fifth objective of the study was to examining if liquidity management influences performance Of
SACCOs. The study sought to find out the extent which liquidity management affects financial
performance of SACCOs in the study area the study concluded that there was good management of
liquidity in SACCOs this is since majority of respondents agreed that SACCOs maintained optimal
cash balance, SACCOs made to immediate payment during members exit and from their regular
saving account, there is restricted credit follow up , defaulters were minimized by SACCOs, all current
assets held by our SACCOs are easily marketable, minimum time lag for loan approval due to shortage
of cash and credit committee evaluates borrowers in terms of their repaying capacity.

From the finding one can easily deduce that there exists a positive and significant relationship between
liquidity management and financial performance of SACCOs. This implies that managing liquidity in
SACCOs was statistically significant in explaining financial performance of SACCOs soddo zuriya
woreda. This implied that the null hypothesis that there is no relationship between liquidity
management and financial performance of SACCOs in sodo zuriya woreda, failed to be accepted and
the alternative hypothesis failed to be rejected.
5.3.4 Operating cost and financial performance.
The sixth objective of the study was to examine if operating cost affect financial performance of
SACCOs. The study find out the extent which operating cost affects financial performance of
SACCOs in the study area. The study concludes that the operating costs of SACCOs were
uncontrolled and the designed strategy used to manage fund were weak in the SACCOs this is because
the respondents are agreed that SACCOs incurred the higher unreasonable costs and disagreed that
that expense of their SACCOs were well controlled and at optimal levels.

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From the finding one can easily infer that there exist negative and significant relationship between
operating cost and financial performance. This implies that operating cost was statically significant in
explaining financial performance of SACCOs sodo zuriya woreda. This implied that the null
hypothesis that there is no relationship between operating cost and financial performance of SACCOs
in sodo zuriya woreda failed to be accepted and the alternative hypothesis failed to be rejected.
5.3.5 Financial reporting and financial performance
The seventh objective of the study was to examine if financial reporting affects financial performance
of SACCOs the study sought to find out the extent which financial reporting affects financial
performance of SACCOs in the study area. The study concluded that the financial reporting of
SACCOs was weak this is as the respondents are disagreed that SACCOs frequently informs the
financial progress to the members, audit report reveals the strength of reporting standard used by
SACCOs, disagreed strong reporting follow up by promotion office, disagreed semi-annually
communication of financial performance, disagreed members have better financial information than
members in our SACCOs, disagreed SACCOs provides financial report to revenant users only and
their book of account was disclosed.

It can be concluded that there exist positive and significant relationship between financial reporting
and financial performance. This implies that financial reporting was statically significant in explaining
financial performance of SACCOs sodo zuriya woreda. This implied that the null hypothesis that,
there is no relationship between financial reporting and financial performance of SACCOs in sodo
zuriya wereda failed to be accepted and the alternative hypothesis failed to be rejected.

5.4 Conclusions.
The last objective of the study was to draw conclusion and to provide necessary recommendation. The
conclusions were reached at on the influence of the independents variables competition from omo MFI
internal politics saving culture, liquidity management, operating cost and financial reporting on the
financial performance of SACCOs.
5.4.1 Financial performance.
The study concludes that absolute accounting figures of financial performance increased through time,
however the rate of return was decreased across the period. Therefore it was possible to conclude from
the study finding that SACCOs were operationally inefficient.

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5.4.2 Competition and Financial performance
The study concludes that competition from omo MFI was low. It can be concluded from this study that
when holding other factors constant competition had negative and significant relationship with
financial performance. This implies that management competition in SACCOs was statistically
significant in explaining financial performance.
5.4.3 Internal politics and financial performance.
The study concludes that there were weak policies in place to manage internal politics. It can be
concluded from this study that there exist a negative significant relationship between internal politics
and financial performance of SACCOs. The results reveal that internal politics management is
statistically significant in explaining performance of the SACCOs.
5.4.4 Saving culture and financial performance.
The study concludes that there was good saving culture of the SACCOs it can be concluded this study
That there exist a positive significant relationship between saving culture and financial performance of
SACCOs. The results reveal that saving culture management is statistically significant in explaining
performance of the SACCOs .
5.4.5 Liquidity management and financial performance.
The study concludes that there was good liquidity management of the SACCOs. It can be concluded
from this study that there exists a positive significant relationship between liquidity management and
financial performance of SACCOs. The results reveal that by keeping other factors constants liquidity
management had positive and statistically significant in explaining financial performance of the
SACCOs, however with the combination of other variables the relationship between liquidity
management and financial performance had positive and statistically insignificant this is due to the
dilution effects others factors.
5.4.6 Operating cost and financial performance.
The study concludes that there operating cost of SACCOs were uncontrolled and the designed strategy
used to manage fund were weak. It can be concluded from this study that there exists negative and
significant relationship between operating cost and financial performance of SACCOs.

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5.4.7 Financial reporting and financial performance.

The study concluded that there was weak financial reporting system of the SACCOs. It can be concluded from
this study that there exist a positive significant relationship between financial reporting and financial
performance of SACCOs.

5.5 Recommendations
The last objective of the study was to provide necessary recommendations. The recommendations
were made regarding the influence of the independents variables; competitions from omo MFI internal
politics saving culture liquidity management operating cost and financial reporting on the financial
performance of SACCOs in sodo zuriya,

5.5.1 Competition and Financial performance

The study sought to determine the influence of competition from MFI on the financial performance of
SACCOs in sodo zuriya woreda. The study recommends that SACCOs should emphasize and enhance
managing competition from omo MFI , they should also ensure that they incorporate members views
whenever making changes in the systems so that there will be smooth operations of the activities,
SACCOs should also ensure that all members are well trained about the policies governing. The
SACCOs should enlighten the members on their knowledge about SACCOs and their profitability. In
addition to SACCOs committee and promotion office staff should always update them-selves in the
system service and products changed by omo MFI as well by other micro finance institution in their
area.

5.4.2 Internal politics and financial performance

The study sought to establish whether internal polities influence the financial performance of SACCOs
in the study area. Internal policies were found to be determinants of weaken financial performance
(operational efficiency) of SACCOs. The study recommends that the SACCOs should put in place
measures to safeguard the independence and effectives of all members. The management should
ensure that SACCOs have strategic objectives, ensure they come up with common objectives for all
members and to make sure all members are treated equally when accessing the products. Furthermore,
the study recommend that SACCOs should work to ensure that their autonomy and decisions should
on the basis of members will not on other SACCOs decision and management style.

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5.4.3 Saving culture and financial performance.

The study was conducted to determine the extent which saving culture influences the financial
performance of SACCOs. From the study conclusions, there were good and effective policies on
saving culture of SACCOs. The study recommends that the SACCOs should emphasize on setting
targets on the members on the amounts to save to help improve the financial performance of SACCOs.
They also should work to improve household income through providing credit to members thereby the
members could be able save more from their marginal income. Cooperative promotion office should
train SACCOs committee and should also do the same to general public regarding the merit of saving
in cash. Furthermore the study recommends that SACCOs should wisely invest in the next best
alternatives that the deposit accepted from the members to enhance their profitability.

5.4.4 Liquidity management and financial performance

The study was carried out to determine extent which liquidity management influences financial
performance of SACCOs. From study conclusions, SACCOs should enhance the level of liquidity to
avoid loss due to stock out and to retain members in their cooperative rather watching the door of
other financial institutions to obtain the service, The study further recommend that SACCOs should
minimize time taken for loan processing. Furthermore, cooperative promotion office should provide
training to the SACCOs regarding liquidity management

5.4.5 Operating cot and financial performance

The study conducted to establish the influence of operating costs on the financial performance of
SACCOs in the study area. Operating cost was found to be determinate of the financial performance
SACCOs in sodo zuriya Woreda. The study recommends that the SACCOs management should ensure
that SACCOs have effective strategic plans and policies governing the running of the SACCOs which
will help in the reduction of operating costs.

5.4.6. Financial reporting and financial performance

The study conducted to explore extent which financial reporting influences financial performance of
SACCOs. From, the study conclusions, there was weak financial reporting system management in
SACCOs. The study recommends that SACCOs should identify relevant internal and external user so
as the report reach appropriate body. The study further recommends that the Woreda cooperative
promotion office should deliver updated standard financial reporting system. SACCOs should make
easier to the members to know their financial position and their obligations periodically.

5.4. Recommended area for further research

Another study to be carried out using other factors such as, leadership style plant asset
management ,size of members in cooperatives, and etc which may affect the financial performance of
SACCOs. Future studies could also focus on a comparative study among various sectors
(I.e.,SME,etc). Future studies should apply different research instruments like focus group discussions
and primary data only to involve respondent in discussions in order to generate detailed which would
help improve financial performance of SACCOs in the Woreda
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