Asset Quality and Efficiency of Deposit Taking Savings and Credit Cooperative Societies in Kenya
Carolyne Jebiwott Kimutai, Dr. Ambrose Jagongo, Dr. Job Omagwa

Abstract
The deposits taking Savings and Credit Cooperative Societies have continued to play a critical role in Kenya’s financial sector in terms of access, savings mobilization and wealth creation. Given the importance of the sector in economic growth, there has been considerable interest in their efficiency. In Kenya, DTS have been reported to have low efficiency, with the average efficiency being less than one. There is limited empirical literature to explain the inefficiency of DTS. In view of this, the study sought to establish the effect of asset quality on efficiency. The study was anchored on Asymmetric Information Theory. The study adopted positivist philosophy and explanatory research design. The target population comprised 110 DTS as at 2017.The study used secondary data that was collected from the audited financial statements for the period 2012-2016.Data was collected using a document review guide. Data Envelopment Analysis methodology was used to generate efficiency scores. Both descriptive analysis and inferential statistics which included panel Tobit regression was done and was aided by stata version 11. Descriptive analysis indicates that the mean of asset quality is above the required maximum by the regulator. In addition, asset quality had a statistically significant effect on efficiency. The study concluded that: increase in non-performing loans reduces efficiency. The study recommends that DTS Societies should develop credit administration strategies that reduce the amount of non-performing loans; a policy for credit information sharing to make it compulsory for Deposit Taking Savings and credit Cooperative Societies to share credit information.

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