ABSTRACT
The semi-formal financial sector plays a crucial role in providing credit facilities to small and medium enterprises (SMEs) in Tanzania. However, this sector has faced challenges related to Non-Performing Loans (NPLs), which can impede economic growth and development. This study aims to investigate the determinants of NPLs in registered Savings and Credit Cooperative Societies (SACCOS) in Dar es Salaam Region, Tanzania. The main objective of this study is to examine the factors influencing Non-Performing Loans in SACCOS, with a focus on borrowers' characteristics, business characteristics, and financial institutions' characteristics.
A mixed-methods approach, combining qualitative and quantitative research methods, was employed. Qualitative data were collected through interviews, while quantitative data were collected using questionnaires. A total of 100 respondents, including loan officers and SACCOS members, participated in the study. Data analysis for this study involved a mixed-methods approach, combining both qualitative and quantitative techniques. For qualitative data analysis, information obtained through interviews was transcribed, reviewed, and coded to identify recurring themes related to Non-Performing Loans (NPLs) in Savings and Credit Cooperative Societies (SACCOS). The thematic analysis technique was applied, allowing for the recognition of key subjects and patterns in the data. In contrast, for quantitative data analysis, the Statistical Package for Social Sciences (SPSS) software was utilized. Descriptive statistics, including frequency, percentage, and mean and SD, were employed to summarize the data, particularly Inferential statistics, such as the chi square test, were used to examine the determinants of Non-Performing Loans in SACCOS.  The sample demonstrated a balanced gender distribution, with 55% of respondents being female and 45% being male. Regarding age, the respondents had a mean age of 29.5 years, with a standard deviation (SD) of 5.9 years. In terms of business capital, 72% reported having a capital in the range of 1,000,000 to 5,000,000 Million, while 15% had a capital in the range of 6,000,000 to 10,000,000 Million. The remaining 13% reported a capital exceeding 10,000,000 Million. Regarding the period of business engagement, 69% had been in business for 1-5 years, 22% for 6-10 years, and 9% for more than 10 years. Concerning interest rates, 56% reported dealing with financial institutions offering an interest rate of 5%, while 32% indicated interest rates falling within the range of 5-10%. Regarding the financial payback period, 63% had a payback period of 1-5 months, 26% had a payback period of 6-10 months, and 11% reported a payback period of 11-24 months. n relation to non-performing loans, 74% reported a non-performing loan rate of 5%, while 26% had a non-performing loan rate falling within the range of 5-10%The study revealed that several factors influence Non-Performing Loans in SACCOS. Borrowers' characteristics, such as age, education level, and employment status, were found to impact loan repayment. Business characteristics, including business size and collateral offered, also played a significant role. Financial institutions' characteristics, such as lending policies and loan approval processes, were identified as key determinants of NPLs.
The findings suggest that addressing NPLs in SACCOS requires a multifaceted approach. Financial institutions should consider borrowers' characteristics, improve risk assessment, and streamline lending policies. Additionally, borrowers should receive financial literacy training to enhance their capacity for loan repayment. The study recommends that regulatory authorities and SACCOS management collaborate to develop strategies to mitigate NPLs in the sector.
Keywords: Non-Performing Loans, SACCOS, financial institutions, borrowers' characteristics, business characteristics, Tanzania.