CREDIT REFERENCING ON LOAN PERFORMANCE OF DEPOSIT TAKING MICROFINANCIAL INSTITUTIONS IN MOMBASA COUNTY
Abstract
This study purposed to determine effect of credit referencing on loan performance of deposit taking MFIs in Mombasa, Kenya. In Kenya, despite CRBs introduction into the financial system, recent statistics of CBK indicate increasing microfinance non-performing loans over the years. According to Central Bank of Kenya (CBK) 2017 report, Kenya’s microfinance sector loss hit to $7.31 million as at December 2017, compared to 2016, which recorded $ 3.77million thus contributing to huge reduction of financial income. The study utilized descriptive research design. The target population of the study was management staff of the 6 deposit taking MFIs which are licensed by CBK and have fully-pledged branches in Mombasa County. The study adopted stratified sampling technique. The study used primary and secondary data. A structured questionnaire was used to collect the primary data. Descriptive and inferential statistics was used to analyze information generated from respondents. Descriptive statistics included responses mean and standard deviation. Inferential statistics was composed of bivariate correlation analysis and multiple regression analysis. The data analysis tool to be used was Statistical Package for Social Science (SPSS) version 25. Analyzed data was presented in frequency tables to facilitate ease of interpretation and discussions. The study revealed that credit scoring has a positive effect on loan performance. The study established that the MFI uses credit information sharing as a basis for setting better loan pricing for the borrowers and that the MFI’s knowledge of applicants’ characteristics, easing adverse selection problems. Also the credit reference bureaus have led to improved default rate of borrowers. The study concluded that credit risk assessment has a positive effect on loan performance. The analysis comes to the conclusion that the MFIs are prone to experience bad actors who apply and get loans based on misleading information. Credit reference bureaus have led to enhanced loan delinquency in our MFIs. The study recommended that the deposit taking microfinance should promptly report policy exceptions and that these banks should conduct collection enforcements. The deposit taking microfinance should recover default amount from the guarantor. This would be made possible by setting up of a dynamic client follow-up procedures.
Key Words: Credit Information Sharing, Moral Hazard, Credit Risk Assessment, Credit Scoring, Loan
CITATION: Chaka, R. N., & Ibrahim, A. (2023). Credit referencing on loan performance of deposit taking Microfinancial institutions in Mombasa County. The Strategic Journal of Business & Change Management, 10 (2), 604–618.
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DOI: http://dx.doi.org/10.61426/sjbcm.v10i2.2625
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