Determinants of Technical Inefficiency of Saccos in Kenya: A Net Operating Cash Flows Output Slack Analysis

Abstract

Purpose: The purpose of this study was to evaluate the determinants of technical inefficiency of Saccos in Kenya. Methodology: The explanatory research design was utilized. The financial statements data was collected from a census of 46 audited deposit taking Saccos and methods used included estimation of technical inefficiency by employing a non-parametric DEA method while the second step concerned determination of inefficiency using parametric SFA. The log truncated panel data was used for a period of 8 years (2007-2014). Result: All the predictors jointly influence inefficiency and are significant except for prime regressors given NOCF slack as hypothesized in agency, efficiency and intermediation theories. NOCF slack regression reflects lack of managerial influence as indicated by Gamma (1.13E-23) while DEA result of all Saccos indicated 0.976 mean efficiency. Contribution to policy and practice: The NPTA, CA and FI predictors had significant influence on pure technical inefficiency, thus apt for decision making.