Abstract:
The Savings and Credit Cooperative Societies (SACCOS) which are co-operative financial models are
flourishing in most of the developing economies recently. However, loan repayment capacity remains a
challenge that threatens their future. Using financial statements data for the year 2012, from 36
SACCOS in Kilimanjaro Region, Tanzania, and using descriptive statistics and regression models in the
analysis, this study examines the relationship between financial performance and loan repayment
capacity. It thus examines the extent by which SACCOS are capable of recovering the loan issued and
also the financial ratios that explain loan repayment capacity in SACCOS. The study depicts that there
is a severe financial risk management problem among Tanzanian SACCOS. Focusing on sustainability
is significant for improvements of loan repayment, but focusing on profitability in SACCOS results to an
adverse loan repayment. The study asserts that the primary focus of SACCOS should not be profit but
member’s wealth maximization and sustainability of the institution. Moreover, we suggest that in
addition the traditional means of dealing with financial risk, the uses of a modern risk management tool
like credit scoring should be considered in evaluating borrowers.
