The Effect of Credit Management Practice on Financial Performance of Urban Saving and Credit Cooperative Societies In Dire Dawa Administration

Assessing the impact of credit management on the financial performance of Dire Dawa City's credit and savings cooperatives was the aim of this study. Both primary and secondary data were used in the study; semi-structured interviews were used to gather primary data, while audited financial statements from six saving and credit cooperatives (SACOs) in Dire Dawa City from 2018 to 2022 served as the main source of secondary panel data. The data was analyzed using SPSS software Version 20 to determine the effect of credit collection policy, interest rate, liquidity, credit risk, and capital adequacy on financial performance (return on assets). A test of ordinary least square (OLS) assumptions was done to check that the classical linear regression model was fitted. Correlation and regression analyses were conducted to determine the findings of the study, and a hypothesis test was also done to support empirical findings. The result revealed that liquidity and credit risk had a statistically significant but negative relationship with return on assets. On the other hand, credit collection policy and lending interest rate had a significantly positive relationship with the return on assets of SACOs. However, there is a statistically insignificant positive relationship between adequate capital and financial performance. According to the results of the study, the researcher recommends that saving and credit cooperatives can increase financial performance by pricing and maintaining an optimal interest rate and liquidity position, respectively. To increase profitability, they should also establish strict credit collection guidelines that will shorten the average collection time and enable them to collect interest-bearing member loans early. Additionally, it is advised that management be able to learn from the past, be acutely aware of how to monitor and control credit risk, price loans based on risk rating to guarantee sufficient risk compensation, and calculate and maintain sufficient capital against these risks. Finally, the study concluded that there is a significant relationship between credit management and the financial performance of SACOs in Dire Dawa, Ethiopia.