Abstract:
The financial sector in any country is an important sector in the development of a country. Most
failures in the financial sector have been caused by non-performing loans or bad debts which are
attributed by poor or ineffective loaning policy. While the consequences of credit risk management
are well understood, the direction of the effects are predicted by theory, and evidence on their
magnitude are still scarce, and centered around banking sectors and insurance markets. This study
focused on the credit risk management on financial performance in savings and co-operative
societies in Kitui County. This study was undertaken in Kitui County, Kenya where the researcher
based the research on financial performance and in specific Savings and Credit Co-operative
societies (SACCOs). The research design used in this study was a descriptive research design. The
data collection instruments in this case included self-administered questionnaires which were used
to extract valuable primary data from the SACCOs’ management. The study used quantitative
method to analyze the data and examine the simultaneous impact of the independent variables on
the dependent variable. The findings of the study are; there was a very strong positive relationship
between credit monitoring and financial performance of SACCOs, there is a very strong positive
relationship between loan policy in mitigation of risk and financial performance of SACCOs, there
is a very strong positive relationship between loan defaulters and financial performance of
SACCOs. The recommendations of this study are; the SACCOs should intensify, internal auditor
doing verification of the loans so as to improve on the monitoring of loans, the SACCOs should
continually review their loan policies so as to be up to data with the current economic trends, the
SACCOs should consider not give loans without considering the retirement age.
