Credit Risk Management, Efficiency and Financial Performance: Evidence from Deposit-Taking Savings and Credit Cooperative Societies in Kenya.

This study examines the mediating role of efficiency in the relationship between credit risk management and financial performance of deposit-taking Savings and Credit Cooperative Societies (DT-SACCOs) in Kenya. While credit risk management practices such as risk identification, risk analysis and risk control are known to influence financial performance, the extent to which internal operational efficiency enhances or moderates this relationship remains unclear. Anchored on the Financial Intermediation Theory and supported by Modern Portfolio Theory, the study adopted a descriptive cross-sectional design and targeted all 176 licensed DT- saccos in Kenya. Primary data on credit risk management and efficiency were collected through structured questionnaires administered to credit risk managers, while return on assets (ROA) data was obtained from audited financial statements covering the period 2017-2022. The study employed hierarchical regression analysis to test mediation effect of efficiency. Results revealed that while credit risk management had a significant direct effect on financial performance, efficiency did not mediate the relationship significantly. The findings suggest that although SACCOs exhibit moderate efficiency levels, efficiency alone does not enhance the effects of credit risk management on performance. The study recommends strategic investments in process optimization, technology and capacity-building to improve operational efficiency and its contributions to financial outcomes.