Assessing the Effect of Cost of Capital in Profitability of Co-operative Societies; A Case of Shinyanga Municipal SACCOS

Abstract

While Co-operative societies are made up of both internal and external sources of income, the extent to which the cost of capital effects their growth and development is questionable regarding different SACCOSs in Shinyanga Municipal. Specifically, the study aimed at both identifying different sources and cost of capital and examining the effect of such cost of capital in profitability of SACCOSs.  As a case study design, the researcher used questionnaires, documentary review and interview to collect the data from 10 selected SACCOSs in Shinyanga Municipal. The data were collected using both qualitative and quantitative approach. The findings reveled that, SACCoSs in Shinyanga Municipal use debt in large proportion than equity to finance their activities. As a result, cost of capital (Weighted Average Cost of Capital) is very high and profit is low for debt financed but equity financed SACCoSs have high profit due to low cost of fund. However, debt financed SACCoSs provides various services to their members in large quantity than equity financed SACCoSs although they exclude the very poor.  It is recommended that, government should set regulations on proportional of debt and equity required for SACCoSs and interest rate charged by financers for them to be sustainable.