Effectiveness of Security on Loan Recovery in Saccos

EFFECTIVENESS OF SECURITY ON LOAN RECOVERY IN SACCOs

(A CASE STUDY OF MHASIBU SACCO)

BY

ANDREW TALAM

BBM/9058/2009.

A RESEARCH PROJECT PROPOSAL SUBMITTED TO MOI UNIVERSITY IN PARTIAL FULFILMENT OF REQUIREMENTS OF A BACHELOR DEGREE IN BUSINESS MANAGEMENT, FINANCE & BANKING

APRIL, 2011

DECLARATION

THIS PROJECT IS MY RESEARCH WORK AND HAS NOT BEEN PRESENTED FOR AWARD OF ANY DEGREE IN OTHER UNIVERSITIES

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ANDREW TALLAM DATE

THIS RESEARCH PROJECT HAS BEEN SUBMITTED FOR EXAMINATION FOR MY APPROVALE BY MY UNIVERSITY SUPERVISOR.

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MR JULIUS DATE

ABSTRACT

There are about 5,000 sacco societies in Kenya which by December 2007, had mobilized Kshs 200 billion representing about 31 percent of the country’s savings or 1/3 of the country’s GPD. MHASIBU SACCO SOCIETY Ltd is situated in Nairobi and established in 1974. It is one of the largest SACCO Societies in the country. Mhasibu Sacco has a branch in Major cities in the country. Its objective is to mobilize savings and grant loans to members. By December 2007, Mhasibu Sacco Society Ltd had mobilized Kshs 8.8 Billion, which is equivalent to 4.4% of all Sacco Savings in the country. By then the outstanding loans stood at Kshs. 8.2 Billion out of which about Kshs 23.5 Million was delinquent. The securities for the loans are loanees expected future income and guarantors.

Granted, that Sacco Societies mobilize large amounts of Savings and consequently give huge loans on the premise that the latter will be paid promptly, a mechanism of compelling loanees to pay such loans from other sources of income in absence of employment income is lacking. Further the retirement benefits authority (RBA) prohibits the use of a loanees’s pension in

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