Journal of Economics, Finance and Business Analytics

2024; 2(1): 1-13

http://www.quantresearchpublishing.com/ /index.php/jefba

ISSN:3006-0745 (Online)

The Effect of Board Risk Management on Financial

Performance of Selected Saccos in Kiruhura District,

Uganda

1Benon Kyabarongo, 1Moses Agaba, 3Francisis Munyabonera, 2Eliab Byamukama Mpora, 3Cliff

Kikawa, 1Oliver Ahabwe.

1 Department of Management Sciences, Faculty of economics and management sciences, Kabale University, Uganda

2 Department of Business Studies Faculty of economics and management sciences, Kabale University, Uganda

3 Department of Economics and Statistics, Faculty of economics and management sciences, Kabale University, Uganda

Suggested citation to this article:

Kyabarongo et al., (2024). The Effect of Board Risk Management on Financial Performance of Selected Saccos in Kiruhura District, Uganda.

Journal of Economics, Finance and Business Analytics, 2 (1), 1-13

Received: 11 01, 2024; Accepted: 20 01, 2024; Published: 31 01, 2024

Abstract: Corporate risk management, and important ideas among Sacco’s in Uganda are board risk management and

financial performance. The study's general objective was to determine the effect of board risk management affected the

financial results of particular SACCOS in the Kiruhura District. This study used a cross-sectional survey research design using

a quantitative research methodology. The sample size consisted of 184 respondents, staff and members from the six Sacco’s

registered in the Kiruhura area of Uganda as of January 2023. A total population of 342 persons was used at a confidence level

of 95% or an error of 0.05. Two stages separated the data that was collected for analysis. First, SPSS version 20.0 was used to

conduct the preliminary data analysis and descriptive statistics on the respondents. In the second phase, structural equation

modelling (SEM) was used to evaluate and investigate the structural relationships between the variables in the proposed

conceptual model. These statistics included multicollinearity, mean and standard deviation, outliers and extreme values, and

missing data. SEM was implemented using Jaffrey's Amazing Statistical Program (JASP) version 0.17.2.0. The study's

conclusions were: The financial performance of savings and credit co-operative societies (Sacco’s) in Uganda was found to be

significantly positively impacted by board risk management (BRM) (=1.322**), boosting Ha, The study concludes that

SACCOs would experience greater financial gains or better financial performance if they are more stringent about the

processes they follow to review their risk profile and the policies they put in place. The study recommends that; Sacco’s risk

management committees of the board should be very effective in influencing the corporate risk management practices adopted

within the SACCOs and that SACCOs should improve on the levels of BRM to achieve favorable financial results by applying

careful attention to governmental regulations, rules and policies.

Keywords: Corporate Governance, Board Risk Management, Financial Performance, Uganda

1. Introduction

The organization's risk management procedure is overseen by the board risk management (Abdulrahman, 2016). According

to Ali and Bagram (2019), risk management is the methodical process of recognizing, evaluating, responding to,

comprehending, and sharing risk. The foundation of caution in Savings Credit cooperative societies' SACCO operations is

corporate risk management. Prudence in SACCO practice is based on risk management (Jamel, 2021). The strategies used by

Sacco’s to reduce their financial losses are referred to as risk management. Risk is the possibility that foreseeable or unforeseen

events, both present and future, could negatively or harmfully affect an institution's finances, profits, or ability to accomplish

its goals. According to Trofimova (2020), if risks in Sacco’s are not well managed, they might negatively impact the

organization's performance. Anytime decisions are being made to increase an organization's performance and productivity, risk

2 Kyabarongo et al.: The effect of Board Risk Management on Financial Performance of Selected Saccos in Kiruhura District Uganda

management must be taken into account. Organizations have developed appropriate risk control measures to guard against

unforeseen events as a result of the dynamic changes in their operating environment (Makokha, 2016). A board in charge of

overseeing the risk management procedure was referred to as board risk management. Board risk management also refers to

the duties of the board (sometimes known as the council, committee of management, or committee; these terms are

interchangeable (Makokha, 2016). This is one of the board's most important responsibilities. Uganda has seen significant

scandals caused by corporate governance failures even though both public and private companies have embraced the principles

of the practice. These scandals have resulted in a loss of capital investment and trust, corruption and financial theft, the sale of

company property without the consent of shareholders, a slowdown in economic growth and development, and ethical and

social scandals (Muhanguzi, 2019).

SACCOS have a long history that dates back to antiquity. In the 1840s, modern cooperation first appeared in European

industrial centres, particularly in France and Great Britain (Muhunga et al., 2020). SACCOS are becoming more and more

regarded as a viable alternative to banks globally. A Savings and Credit Cooperative Society (SACCO) is an autonomous group

of people who have come together voluntarily to pursue their shared economic, social, and cultural goals and objectives

through a jointly owned and democratically run business (Muhunga et al., 2020) According to Rwakihembo et al. (2020),

SACCOS's primary goal is to further the interests of its members rather than generate revenue. A SACCO needs to put in place

efficient corporate governance to do this. The economic prosperity of Ugandans and the country as a whole, according to the

African Confederation of Co-operative Savings and Credit Association (ACCOSCA), a grouping of national associations of

SACCOS in African nations, depends on SACCOS, which serves as an alternative to banks.Rwakihembo et al. (2020). Ghana

was the location of the first SACCO community in Africa, founded in 1959 by Father John McNulty. As stated by Alsayegh et

al. (2020), the goal was to assist the villages in becoming more prosperous. English-speaking nations were the first to embrace

SACCO. Kenya, Tanzania, Ghana, Uganda, Nigeria, and Tanzania were the initial members of the SACCO community. In the

1960s, SACCO gained popularity in most of Africa's non-English-speaking nations, and in the 1970s, a sizable number of new

members joined the SACCO community (Mwakajumilo, 2016). Nonetheless, according to Iqbal (2016), corporate governance

guidelines set by management typically promote transparency, accountability, and greater risk management in addition to

improved financial performance. The capacity of SACCOs to respond faster to shocks from the inside as well as the outside

has been associated with strong governance structures. The assertion by Arayssi et al. (2019) that corporate governance

generally influences financial performance was supported by this reasoning. Thus, the relationship between corporate

governance and business performance in the financial industry is a topic of intense discussion both domestically and globally.

After attempting to identify the components of excellent corporate governance in Sub-Saharan Africa, Ene et al. (2016)

concluded that the implementation of appropriate corporate governance frameworks may protect the company from future

financial difficulty. Furthermore, according to Esokomi and Mutua (2018), effective governance practices are necessary to

lower investor risk, assign members responsibilities, provide transparency, draw in investment money, and enhance SACCOs'

financial success.

In Uganda During the 1970s economic crisis, when SACCOs initially gained popularity, banks were reluctant to lend due to

the substantial risks associated with borrowers Rwakihembo et al., (2020). At this period, white-collar workers and government

employees—some of whom hadn't gotten a paycheck in a while—had to locate other sources of credit. The Savings and Credit

Societies were particularly beneficial when most public employees got together to save and borrow. The Uganda Savings and

Credit Cooperative Union was founded in 1972 in the same way. The goal was to identify an organization that could better

organize and enhance the capabilities of the primary financial cooperatives. As agricultural cooperatives emerged from the

political and economic challenges of the 20th century, people began to lose faith in the movement due to the deeply ingrained

stigma of mismanagement and asset theft. The tremendous agony of the losses suffered by the cooperative community made

many desire nothing to do with anything that was purportedly cooperative. The purpose of the study was to analyze the effect

of board risk management on the financial performance of selected SACCOS in Kiruhura District and it was supported by the

following hypothesis:

Ho: Board risk management does not significantly affect the financial performance of selected SACCOS in Kiruhura

District.

2. Literature Review

2.1 Theoretical Review

The Agency theory was used in this study and it proposed that corporations might be understood as a centre for a collection

of contractual links between individuals, as opposed to how enterprises are considered in orthodox economics, which sees

them as entities with a single product and a single objective of maximizing profit. Businesses, according to Anand et al.,

Journal of Economics, Finance and Business Analytics 2024; 2(1): 1-13 3

(2020), this can be seen as contracts that are continuously negotiated by many stakeholders seeking to maximize their own

profit. Agency theory was essential in the 20th century for understanding corporate governance. Second, according to agency

theory, managers or staff members within a company could behave in their own best interests. According to the theory,

corporate managers cannot use their discretion to maximize their profits if adequate incentives or monitoring are insufficient to

deter them from doing so.

2.2 Empirical Review

Corporate risk management is the cornerstone of prudence in Sacco's practice. Risk management is the cornerstone of

prudence in Sacco's practice (Jamel, 2021). Risk management refers to the methods that SACCOs use to minimize its financial

losses. Risk is the potential that current and future events, expected or unanticipated may have an adverse or harmful impact on

the institution's capital, earnings or achievement of its objectives. Trofimova, (2020) assert that risks occurring in SACCOs

can hamper SACCOs' performance if not dealt with properly. Anytime decisions are being made to increase an organization's

performance and productivity, risk management must be taken into account. Because of the constantly shifting operational

environment, firms have had to create effective risk control procedures to lessen the likelihood of unforeseen events. Makokha

(2016) and Isanzu (2017) argue that to mitigate risks and ensure that there are no surprises from competitors or the

environment, organizations must plan in light of the dynamic environment. This planning must include the implementation of

risk management practices. Ruparelia and Njuguna (2018) assert that an organization's confidence, image, and reputation in the

market are influenced by corporate governance concepts such as risk management. Because of contingency plans, monitoring

and evaluation programs, and policies embedded in organizational processes, enhance compliance with relevant laws and

regulations and improves an organization's performance in the market. These factors contribute to an organization's ability to

undertake various programs and activities (Adeusi et al., 2020).

This transaction carries significant risks for the borrower as well as the lender. For example, a member's failure to fulfil their

contractual obligations by the deadline or at any other time thereafter could substantially impair SACCO's capacity to carry on

business. Conversely, a SACCO with a high credit risk poses a serious bankruptcy risk, jeopardizing the members' financial

security. One of the hazards that SACCOs have to manage is credit risk, which worries both SACCO authorities and

government regulators. This is because credit is a risk that can quickly and virtually certainly lead to the collapse of SACCOs

(Bernile et al., 2018). This study determined how the Board Risk Management Committee could accomplish its goals and what

it should be doing to improve SACCO's financial performance. The establishment of management plans, risk assessment, and

risk mitigation through the use of managerial resources are all part of the structured approach to credit risk management.

Transferring the risk to a third party, avoiding it, minimizing its adverse effects, and accepting some or all of its consequences

are a few of the strategies. Prior approaches to risk management tended to concentrate on risk caused by external sources, such

as accidents, natural disasters, fires, litigation, and fatalities (Berger, et al., 2016).

Decision-making policies intended to help in the reduction of exposures to credit asset classification loan loss provision are

among the policies employed in credit risk management (Saeidi et al., 2021). SACCOs in particular, along with many other

financial organizations, have serious concerns about this. Therefore, such financial firms should build efficient systems and

procedures that are anticipated to enhance future performance visibility (Ali et al., 2019). All exposures to credit risk must be

identified, measured, mitigated, monitored, and controlled (Lee, 2019). Identification of the risk is the first step in the

management of the credit risk process (Muslih, 2019). Risk identification is the process of identifying potentially dangerous

conditions and attempting to define them. In this procedure, intentional efforts are made to assess, evaluate, and forecast

potential hazards (Ugwu et al, 2021). Identification of risk entails a more thorough analysis of both present and potential

threats to the company across all business operations, including asset management (Al-Nimer et al., 2021). Managers must be

aware of the risks that could have an impact on the SACCO to manage credit risks effectively. They can accomplish this by

creating a suitable credit risk environment, which will help them make sure they don't overlook any risks at this point (Aduda

and Obondy, 2021). The evaluation of members' creditworthiness as borrowers is a component of credit risk analysis. Planning

the sources of repayment and the members' credit histories are included in this. Credit capital and analysis include the process

of screening consumers to ensure that they are willing and able to return the loans within the allotted time frame (Mwanja,

2021).

Because credit risk analysis helps SACCOs with risk-based analysis and risk comparison, which is beneficial to

organizations in prioritizing risk events, it fosters a deeper understanding of risk and its significance. Credit risk analysis

involves determining and assessing any circumstances that could impede future credit repayments, and consequently, the

borrower's ability to repay the facility. Utilizing physical standards, instruments, and staff training methods to prevent, lessen,

or completely eradicate the anticipated outcomes or hazards posed by risks is known as risk control or mitigation. The last step

in the risk management process is monitoring, which is creating policies that identify and disclose potential issues with credit

4 Kyabarongo et al.: The effect of Board Risk Management on Financial Performance of Selected Saccos in Kiruhura District Uganda

and other transactions so that they may be properly watched over, fixed, and provided (Ombati et al., 2023). It entails

maintaining continuous communication with clients. This is intended to present the SACCO as a reliable source of information

and an adept issue solution (Mulinge, 2019). According to Waitherero et al. (2021), risk identification, risk analysis, and

control or minimization are the most widely used credit management indicators. Sacco should take into account the

connections between credit risk and other risks (Maina et al., 2020). One essential element of efficient risk management for

credit is the board committee in charge of managing risk in the Sacco carrying out its duties and obligations, which the

researcher has not directly addressed here. This study examined how Sacco's credit regulation is impacted by board risk

management, which could enhance the organization's financial performance. The relationship between the credit risk

management strategies used by Somalian banks was investigated by Bhatt et al. in 2023. According to the study, bank

managers who are risk-averse and implement strict risk policies saw improved financial performance from their branches when

compared to their peers with more lenient risk policies. According to Adeabah et al. (2023), managing operational risks is

becoming more and more important on a worldwide scale, and they are not just a problem for financial institutions. Financial

institutions all around the world are creating risk management systems, and the majority of them are aiming for efficiency in

risk allocation and management. Finding the risk that a financial institution is likely to encounter during operations is the main

goal of operational risk management, according to Lélé and Koeplin (2023). Curti and Migueis (2023) state that putting

money aside for unforeseen and possible losses is one method of reducing these risks. Operational risk is one of the issues

facing the banking industry today, even if it doesn't get much attention. The danger associated with credit is what worries most

banks. The focus of operation risk management is on the sources of quickly manageable and countable risks. The key question

that SACCO managers should ask themselves is, how best they can handle operational risks in the future and how best they

can recognize them early enough.

Several academics have asserted a connection between financial success, operational risk management, and company

governance. For instance, saving and credit cooperative societies in Uganda should make sure that sound operational risk

management is implemented and carried out by helping to implement SACCO managers overcome a lack of knowledge

through training and staff advocacy for risk management. Significant effects on financial performance are also caused by the

division of labour, assurance, approval, and permission of internal audit and transaction functions in Sacco’s. Ngari (2017)

discovered that internal procedures play a crucial role in assessing an organization's success when it comes to evaluating the

financial performance of Sacco. Patience, K. et al. (2022) agree. The effect of financial risk on the financial performance of the

listed commercial and investment banks in Bahrain Bourse was examined by Ali et al. in 2020. From 2014 to 2018, 11 out of

Bahrain's 18 banks were included in the survey. Data was gathered from the Bahrain Stock Exchange Database based on what

was available. As an alternative, bank performance and risk measurements were measured using the most used statistic, ROA.

There have been four types of financial risk used: operating, liquidity, capital, and exchange risk. The results of regression

analysis show that the association between operating risk, liquidity risk, exchange rate risk, and bank performance is

negligible.

3. Methodology

3.1. Research Design

A planned structure for data collection and analysis is known as a study design (Creswell et al., 2017; Agaba et al., 2023).

It's a comprehensive strategy outlining the methods and procedures for gathering and evaluating data (Cash, 2016). A cross-

sectional survey research design using both quantitative and qualitative methods was used in this study. The quantitative

strategy sought to quantify and establish the relationships, while the qualitative technique gave the researcher thorough

explanations of the elements influencing the financial performance of Sacco’s in Kiruhura District. Given that this

investigation examines the performance of multiple Sacco’s at a certain moment in time, the design seemed acceptable. By

employing this research methodology, the researcher was able to provide data that could be used to describe or profile the

study's subject. The quantitative strategy sought to quantify and establish the relationships, while the qualitative technique

helped the researcher acquire thorough explanations of the impact of corporate governance on financial performance in

Kiruhura District. The kind and volume of data collection methods, sample plans, and funding allocation were all impacted by

the selection of an acceptable research design (Bloomfield and Fisher, 2019, Turyahebwa et, al, 2022). Using the research

design recommendations offered by DePoy et al. (2019), the study aimed to examine the hypotheses derived from the

conceptual model. It was simple to understand the structural connections between the observed variables and their latent

counterparts since hypothesis testing typically clarified the nature of specific interactions between variables. To explain the

variables related to the research objectives and investigate the observable relationships between the primary determinants of

corporate governance and a set of manifest variables that demonstrate financial performance, causal studies, also known as

field studies, were preferred over correlational studies. This study was conducted in an unforeseen environment, similar to

many others that use the regression method of assessment. The study's survey-based data collection strategy eliminated the

Journal of Economics, Finance and Business Analytics 2024; 2(1): 1-13 5

requirement for researcher involvement. A single member of a sample Sacco in the Kiruhura District serves as the unit of

analysis, as also made evident by the research's goals and objectives. The research design employed in this study was a cross-

sectional survey because structural equation modelling (SEM) necessitates a sizable number of respondents, and data can be

gathered once and over a predetermined length of time.

3.2. Study population

The total set of cases from which the sample is taken and from which the researcher intends to derive general conclusions is

referred to as the study population (Saunders et al., 2016). As of the district commercial officer report for Kiruhura District

(2021), there are ten Sacco’s in the district; however, this study focused on the six Sacco’s that are currently active and

registered, namely Kashongi Sacco, Kitura Sacco, Rushere Sacco, North Ankole Platinum Sacco, Kiruhura Epicenter Sacco,

and Rwanyangwe Sacco. The target population, which totalled 342, was made up of employees and members of the six

Sacco’s in the Kiruhura district, specifically shareholders, board members, supervisory committees, advisory committees,

managers, loan officers, internal auditors, accountants, and banking officers. All these categories of people who were

involved in the study are important stakeholders in the Sacco operations.

3.3. Sample Size

Three hundred forty-two (N = 342) individuals in total were taken into consideration for the research. The sample size was

ascertained using the Tora Yamane (1967) formula.

Where n denotes the sample size, N is the total population, and ε is the precision level (margin of error). A total population

of 342 people were used at a confidence level of 95% or error of 0.05 and the sample size being; = 342/ 1 + 342(0.05)2 =184

Therefore, out of the total population of 342, 184 respondents were sampled.

Table 1: Sample Size Determination

Respondent

Target population

Sample Size

Sampling Techniques

Shareholders

216

113

Simple random sampling

Board Members

Purposive sampling

Supervisory Committee

Purposive sampling

Advisory Committee

Purposive sampling

Managers

Purposive sampling

Loans Officers

Purposive sampling

Internal Auditors

Purposive sampling

Accountants

Purposive sampling

Banking Officers

Purposive sampling

Total

342

184

Purposive sampling

Source: Primary data 2022

Sampling is the selection of a portion of the aggregate or totality based on which a conclusion or judgment about the

aggregate or totality is drawn. Board members, Supervisory committee, Advisory committee, Managers, Loans officers,

Internal auditors, Accountants, and Banking officers were selected purposively. The researcher employed purposive sampling

since it enables to use of subjects who are knowledgeable about the study's objectives. Securing a representative group is the

goal of sampling, which enables the researcher to collect the essential information for the study. In this study, the shareholders

were selected by simple random sampling. Simple random sampling was employed because it offers all participants an equal

chance of being chosen, provides a population representative without bias, and facilitates the creation of generalizations about

the sample even when not all participants share the trait being studied.

3.4 Data Quality Control

3.4.1 Reliability Analysis

The Cronbach's Alpha was used to assess the constructs' reliability. With scores for government policies (GoP) and board

accountability (BoA) ranging from 0.743 to .798 respectively, the results indicate that the constructs had satisfactory

6 Kyabarongo et al.: The effect of Board Risk Management on Financial Performance of Selected Saccos in Kiruhura District Uganda

dependability. This indicates that each construct included in the suggested model's elements has a positive correlation with

each other (Hair et al., 2010; Agaba & Turyasingura, 2022).

Table 2: Cronbach’s Alpha for The Studied Constructs

Construct

Cronbach's Alpha

Cronbach's Alpha Based on Standardized Items

N of Items

Board Risk Management

.762

.780

Financial Performance

.765

The measurement known as Cronbach's alpha (α) is employed to ascertain the internal consistency of an assessment tool.

According to Raharjanti et al. (2022), and Agaba and Turyasingura (2022), a Cronbach's alpha value of 0.6 to 0.8 is considered

appropriate. The latent constructs in this study had an overall internal consistency of 0.767 and Cronbach's alpha scores above

0.6 (0.743–0.798).

3.4.2 Pilot Study Results

The questionnaire needed to be pilot-tested before it could be used in this study to determine its validity and reliability and

to make any necessary changes to the questions, structure, and scales (Malmqvist et al., 2019). Pilot research was conducted in

the Mbarara District with a limited number of selected Saccos before the actual questionnaires were distributed in the Kiruhura

district. The principal objectives of the pilot study were to confirm the readability, clarity, and directness of the questionnaire

items and to ascertain whether the collected data offered face validity and addressed the research topics (Gani et al., 2020). The

information was then reviewed by the researcher to find any flaws or potential risks in the questionnaire items, allowing

decisions to be made over which ones should be added, kept, or even eliminated. A convenience sample of twenty-five

respondents from each of the four Sacco’s in the Mbarara District were given the questionnaires over a period of approximately

two weeks. which means that 23 were returned, representing a high percentage of answers (92%). In terms of age, gender, and

other variables, the 21 valid and full surveys matched the average planned sample. In response to suggestions from respondents

and the results of an initial statistical analysis, the researcher modified and removed some of the questions.

3.5. Data Analysis

As part of data analysis, all of the acquired data was inspected, cleansed, converted, and modelled to find pertinent

information and draw conclusions that would help with decision-making (Berman, 2017). There were two stages of analysis

for the data that was collected for this investigation. Using SPSS version 20.0, the initial data analysis and descriptive statistics

on the respondents were carried out. The multicollinearity, mean, standard deviation, outliers, extreme values, and missing

values were among the statistics included in this set. In the second stage, structural equation modelling was used to evaluate

and analyze the structural relationships between the variables in the proposed conceptual model. SEM was implemented using

version 0.17.2.0 of Jaffrey's Amazing Statistical Program (JASP).

4. Results

4.1. Descriptive Statistics

The frequencies, percentages, means, standard deviations, and bivariate correlations between the variables are presented in

this section to characterize participant characteristics concerning their involvement in the operation of the Sacco’s and/or

participation in it. JASP 0.17.20 was the program used to perform the calculations for the descriptive statistics.

Table 3: Showing Participants by Age and Gender

Gender

Frequency

Per cent

Male

21-29

26.1

30-39

37.8

40-49

20.2

50-59

16.0

Total

119

100.0

Female

21-29

26.2

30-39

50.8

40-49

16.9

50-59

4.6

60 and above

1.5

Total

100.0

Journal of Economics, Finance and Business Analytics 2024; 2(1): 1-13 7

The frequency and percentages of the participants' age by gender are presented in Table 3. As seen in the table, the survey

contained more male participants than females. However, for both males and females, the age group 30-39 had more

participants as compared to other age categories with 45 (37.8%, n = 119) and 33 (50.8%, n = 65) males and females

respectively.

Table 4: Showing Qualification by Gender

Gender

Frequency

Per cent

Male

Certificate

31.1

Diploma

28.6

Bachelor

37.0

Masters

3.4

Total

119

100.0

Female

Certificate

23.1

Diploma

23.1

Bachelor

49.2

Masters

4.6

Total

100.0

The frequency and percentages of the participants’ education level by gender are presented in Table 4. As seen in Table 4,

both male and female respondents were of bachelor's level 44 (37%, n = 119) and 32 (49.2%, n = 65).

Table 5: Showing Participants’ Work Experience by Gender

Gender

Frequency

Per cent

Male

Below 1 year

16.8

2-5 years

37.8

6-10 years

21.0

11-15 years

24.4

Total

119

100.0

Female

Below 1 year

12.3

2-5 years

43.1

6-10 years

30.8

11-15 years

12.3

15 years and above

1.5

Total

100.0

The frequency and percentages of the participants’ work experience by gender are presented in Table 5. As seen in the table,

the majority of the participants from either gender had worked between 2-5 years with 45 (37.8%, n = 119) for males and 28

(43.1%, n = 65) for females.

4.2. Confirmatory factor analysis

In compliance with Schreiber's (2021) guidelines, a confirmatory factor analysis (CFA) was also performed using JASP

0.17.20. All latent variables, or constructs, are allowed to co-vary in the CFA while the measurement model is evaluated,

defining the links between the manifest and latent variables (Figure 1).

8 Kyabarongo et al.: The effect of Board Risk Management on Financial Performance of Selected Saccos in Kiruhura District Uganda

Figure 1: Measurement model for board risk management (BRM)

Table 6: Factor Loadings from the confirmatory Factor Analysis: Board Risk Management (BRM)

95% Confidence Interval

Standardized

Latent

Indicator

Estimate

Std. Error

z-value

Lower

Upper

All

Endo

BRM

FOUR_1

1.000

0.000

1.000

0.614

0.588

0.614

FOUR_2

0.994

0.149

6.691

< .001

0.703

1.286

0.675

0.585

0.675

FOUR_3

1.305

0.209

6.252

< .001

0.896

1.714

0.608

0.767

0.608

FOUR_4

0.816

0.130

6.294

< .001

0.562

1.070

0.614

0.480

0.614

FOUR_5

0.895

0.130

6.894

< .001

0.640

1.149

0.714

0.526

0.714

Model fit indices

Root Mean Square Error of Approximation (RMSEA) = 0.045

Comparative Fit Index (CFI) = 0.990

Standardized RMR = 0.026

Goodness of Fit Index (GFI) = 0.999

The model Chi-squared (?2) = 7.253 (𝑝 > 0.05)

Analysis of the CFA's fit indices reveals that the suggested measurement model of board risk management is suitable for use

as input in further structural equation modelling investigations.

Journal of Economics, Finance and Business Analytics 2024; 2(1): 1-13 9

Figure 2: Measurement model for financial performance (FiP)

Table 7. Factor Loadings from the confirmatory Factor Analysis: Financial Performance (FiP)

95% Confidence Interval

Standardized

Latent

Indicator

Estimate

Std. Error

z-value

Lower

Upper

All

Endo

FiP

FIVE_1

1.000

0.000

1.000

0.652

0.504

0.652

FIVE_2

0.935

0.155

6.043

< .001

0.632

1.238

0.557

0.471

0.557

FIVE_3

1.261

0.176

7.171

< .001

0.916

1.605

0.716

0.635

0.716

FIVE_4

1.423

0.195

7.292

< .001

1.040

1.805

0.757

0.717

0.757

Model fit indices

Root Mean Square Error of Approximation (RMSEA) = 0.103

Comparative Fit Index (CFI) = 0.978

Standardized RMR = 0.025

Goodness of Fit Index (GFI) = 0.999

The model Chi-squared (?2) = 5.868 (𝑝 > 0.05)

Analysis of the CFA's fit indices reveals that the suggested measurement model of financial performance is suitable (see the

section on model fit indices) for use as input in further structural equation modelling investigations.

Table 8: The summary of results for the Direct Hypotheses of the latent variables (n = 184)

Proposed relationship

Effects type

Path Coefficient

Study result

H0:

BRM → FiP

Direct effect

1.322**

Supported

**Significant at p < 0.05

Board risk management (BRM) (=1.322**) was found to have a significant positive influence on the financial management

of savings and credit co-operative societies (Sacco’s) in Uganda

10 Kyabarongo et al.: The effect of Board Risk Management on Financial Performance of Selected Saccos in Kiruhura District Uganda

5. Discussion

Board risk management, or BRM, was found to be a major predictor of SACCOs' financial performance based on a few

corporate governance criteria. The estimate (1.322) on BRM illustrates how SACCO's financial performance is impacted by

board risk management as a gauge of corporate governance. This usually means "adjusting for" or "controlling for" the

additional explanatory factors. According to the optimistic estimate (1.322) for BRM, for every unit increase in BRM,

SACCO's financial performances increase by 1.322 units/levels. All things considered, this indicates that SACCOs, as an

organization, stand to gain monetarily from more stringent regulations about board risk management. Put differently, SACCOs

that generated paperwork that compiled all pertinent information about the risks associated with the Board's Strategic

Objectives in one location were more likely to be profitable. Above and above the previously put forward hypotheses, it was

shown that board risk management had a considerable beneficial direct impact on the financial performance of the SACCO.

This demonstrates that the BRM variable had a higher influence on the financial performance forecast of SACCOs than did the

BoA and BAC variables. The positive direction of the effect indicated that SACCOs would gain financial advantages or

outperform in terms of financial performance if they tightened up the processes, they employed to evaluate their risk profile

and the measures they implemented to reduce any identified hazards. The outcome was consistent with the Maliks Model. This

result was also in line with Syrová & Špička's study from 2023, which found a direct impact of enterprise risk management

that was statistically significant. Maliks' Model states that enterprise risk management has a major role in a company's

financial performance (Malik et al., 2020; Mutamimah et al., 2022). This, however, contradicts a study by Gweyi (2018), who

looked into how Kenyan DT-SACCOs' financial performance might be impacted by interest rates, credit, liquidity, and

operational risk. The results indicated that there was a statistically significant negative interaction between the financial

performance attributed to the studied DT-SACCOs and operational risk. The aforementioned point of view is supported by the

research done by Kioko et al. (2019), which discovered that operational risk had a statistically significant and detrimental

effect on the banks that were the subject of the study. The study by Ali et al. (2020) and Tassew and Hailu (2019), which also

came to the same conclusion, supports this finding. The financial performance of Kenyan commercial banks was shown to be

statistically insignificantly correlated with liquidity risk, according to Njiru's (2020) analysis of the effects of credit risk,

operating risk, and liquidity risk on the financial performance of Kenyan commercial banking institutions.

6. Conclusions and Recommendations

6.1 Conclusion

In the context of local community settings, corporate governance is measured by board risk management and is a precursor

to Sacco’s' financial performance. Despite earlier suggestions that it may be significant, this variable has not been included in

empirical research on SACCO's financial performance in resource-constrained environments. According to the findings, the

financial performance of Sacco’s increased by 1.322 units or levels for every unit increase in BRM, according to the optimistic

estimate (1.322) for BRM. In summary, as an organization, Sacco stands to gain financially from more stringent regulations

about board risk management. The study findings suggest that the BRM variable contributed more to the financial performance

prediction of Sacco’s than the BoA and BAC variables did. The positive effect's direction demonstrated in the study findings

leads us to conclude that Sacco’s would experience greater financial gains or better financial performance if they were more

stringent about the processes, they followed to review their risk profile and the policies they put in place to avoid the risks that

were identified.

6.2 Study Limitations

First of all, the participants in the sample frame came from a single district in Uganda and were selected using a largely

purposive and convenience sampling technique. This sampling technique limits the capacity to extrapolate the findings to all

Sacco’s in Uganda, even though the majority of the corporate governance variables evaluated are by Syrová and Špička (2023)

findings and the sample characteristics fit the criteria for the target population.

6.3 Recommendations

We recommend that SACCO risk management committees of the board be very effective in influencing the corporate risk

management practices adopted within Sacco and should be stricter about the processes they follow to review their risks and the

policies they put in place to avoid the risks that were identified in the study, given the positive effect's direction demonstrated

in the study's findings. A significant contribution of this work is to demonstrate the relevance of corporate governance,

measured by board risk management as an antecedent to Sacco’s financial performance within the context of local community

settings. This variable has previously been suggested as potentially important but had not been included in empirical work on

accessing the financial performance of Saccos in resource-limited settings. In order to determine how the findings might vary

from the current research, future research may duplicate the study using one or more different conceptions that measure

Journal of Economics, Finance and Business Analytics 2024; 2(1): 1-13 11

corporate governance from a different instructional perspective.

Conflicts of Interest

“The authors declare no conflicts of interest.”

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