Peter Wang’ombe Kariuki1* Willy M. Muturi1 PhD Patrick K. Ngugi1 PhD

1. School of Business & Economics, Jomo Kenyatta University of Agriculture and Technology, Kenya

* E-mail of the corresponding author: p.kariuki3@gmail.com

CITATION: Kariuki P W, Muturi W M, & Ngugi P K. (June, 2016) Profitability and intermediation efficiency: Evidence from deposit taking saving and credit cooperative societies in Kenya: International Journal of Economics & Finance (IJEF) 2 (3), 215-229. ISSN 2105 6008.

Abstract

In the recent past, the concept of efficiency has gained prominence as an alternative measure of firms’ performance. Empirical evidence with respect to its relationship with the traditional measures of financial performance is scanty. The study sought to evaluate the relationship between profitability and intermediation efficiency of deposit taking SACCO societies (DTSs) in Kenya. The study adopted a two staged methodology. In the first stage, efficiency scores are generated using Data Envelopment Analysis (DEA), corrected for bias using bootstrapping and used as dependent variable in the fixed effect regression model estimated in the second stage. A balanced panel data of 103 DTSs for a period 2011-2014 was used in the study. The results indicate that there exists a positive significant relationship between profitability and intermediation efficiency. This reveals that most efficient DTSs were on an average characterized by higher profitability. This indicates that there exists goal congruence such that as the management strives to maximize the members’ wealth through increased profitability, the efficiency also improves.

Key Words: Data Envelopment Analysis, Deposit Taking SACCO, Inter-mediation Efficiency, Non-interest income, Profitability.

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