Abstract:
The specific objectives of this study was to establish the effect of loan appraisal system to
loan defaulting by Sacco client, to establish the effect of management skills to loan
defaulting, to establish the effect of loan policy to loan defaulting and to establish whether
poor loan use contributed to loan defaulting. A descriptive research design was employed
in the study. Random samples were drawn from all credit managers and clients in the
selected Sacco's from Kirinyaga County strata which formed the sampling frame. A
proportional approach to sampling was utilized within the strata. A total of 30 credit
managers and 383 Sacco clients were picked through simple random technique for each
stratum using a table of random numbers. Quantitative data was collected from the
respondents. Statistical Package for Social Scientists (SPSS) version 19 was utilized to do
the regression and correlation analysis ·with a 0.05 level of significance. The data collection
instrument ,questionnaires was distributed to the credit managers and the clients from the
selected Saccos in Kirinyaga County. The response rate was 92%.The data collected was
presented in form of tables, pie charts, cross tabulations, correlations and figures. From the
study, it was found that loan appraisal system related well to loan defaulting. Where poor
loan appraisal was done, it resulted to loan defaulting. It was also found that the
management skills also related well to loan defaulting. Where the management applied
poor skills it resulted to loan defaulting. Loan policy related well to loan defaulting. Where
poor loaning policy was applied, it resulted to loan defaulting. It was also found that loan
use related to loan defaulting. When the loan granted was diverted to other uses other than
investing in income generating projects, it resulted to loan defaulting. The results from this
study showed that loan appraisal system, management skills, loan policy and loan use have
a relationship to loan defaulting. The major contributors to loan defaulting were poor loan
appraisal system, poor management skills, poor loan policy and poor loans. These can be
controlled and avoided if only the Sacco was under good supervision. The researcher
recommended the Saccos to formulate a comprehensive loan appraisal system and train the
credit officers on how to use it effectively to reduce loan defaulting.
