Effect of Asset Diversification on Financial Performance of Deposit-Taking SACCOs in Kenya: The Moderating Role of Corporate Governance

Abstract

This study examined the effect of asset diversification on the financial performance of deposit-taking SACCOs (DT-SACCOs) in Kenya and the moderating role of corporate governance in this relationship. A positivist philosophy and an explanatory longitudinal design were adopted. Secondary panel data for 2015–2024 were extracted from the audited financial statements of 122 DT-SACCOs and SASRA reports. Asset diversification was measured by loans and non-loan assets as shares of total assets, financial performance by surplus and the dividend payout ratio, and corporate governance by a board accountability index. Fixed-effects (surplus) and random effects (dividend payout) panel models, selected by the Hausman test, and hierarchical moderated regression were estimated. The loan share was positively associated with surplus (β = 0.382, p < 0.01) but not with dividend payout, while the non-loan asset share was negatively associated with dividend payout (β = −0.092, p < 0.05). Board accountability was positively associated with both measures and strengthened the association of lending with surplus (β = 3.271, p < 0.01) and of non-loan assets with dividend payout (β = 0.130, p < 0.05). The results are associations based on secondary data, and governance is captured only through board meeting activity. The SACCO boards should treat member lending as the core business, appraise non-loan investments rigorously and strengthen board and audit committee accountability, while SASRA should monitor non-core investments.