The diversification of deposit-taking savings and credit cooperatives in Kenya through investment in other financial institutions has emerged as an important strategy among financial institutions, although its effect on financial performance has not been adequately addressed in empirical literature. This study investigated the influence of investment in other financial institutions on the financial performance of deposit-taking savings and credit cooperatives in Kenya. Financial performance was measured using return on assets, while investment in other financial institutions was proxied by the proportion of funds invested in other financial institutions. The study adopted a longitudinal research design using panel data obtained from the Savings and Credit Cooperatives Societies Regulatory Authority covering 182 licensed deposit-taking savings and credit cooperatives for the period 2015-2023. A fixed-effects panel regression model was applied in the analysis. The results revealed that investment in other financial institutions had a positive and statistically significant effect on financial performance (? = 0.174083, p < 0.001). The findings indicate that increased investment in other financial institutions enhances profitability with a relatively stronger effect compared to traditional lending activities. The study contributes to the existing literature on savings and credit cooperatives investment diversification by providing empirical evidence from a developing economy context. The study recommends that deposit-taking savings and credit cooperatives should diversify their investment portfolios through regulated financial institutions while maintaining prudent risk management practices.
Omwansa et al. (Thu,) studied this question.