INFLUENCE OF CREDIT MANAGEMENT ON THE LOAN PERFORMANCE AMONG MICROFINANCE INSTITUTIONS IN KENYA
Abstract
Effective management of credit is essential to the long term success of any microfinance institution, since they generate most of their income from interest earned on loans extended to small and medium entrepreneurs. This study sought to establish the influence of credit management on the loan performance of deposit taking microfinance institutions in Kenya. The objectives of the study were to: establish the influence of risk management and the effect of interest rates, on loan performance of microfinance institutions. The study adopted descriptive survey research design .The target population of this study was taken from 6 selected MFIs located in Nairobi. The study sampled the credit officers of these institutions using stratified random sampling technique .The data was collected by use of structured questionnaires. A pilot survey was conducted with a sample size of 10 credit officers from these 6 MFIs. Data was analysed through descriptive statistics and regression analysis. Presentation of findings was done using tables. The research revealed that risk management and the interest rate, affect the loan performance. The study recommended that MFIs recognize the need for proper risk management strategies. It also recommended that the MFIs review the interest charged and make them favorable among the customers. This will increase the competitive advantage among the competitors and thus increase the clientele. The findings also recommend that the MFIs review their operational costs and minimize them since they make up the single largest component of the expenses. The research further recommended that MFIs should develop credit terms that are customer friendly and customer centered. This will enable more customers take up loans and also improve the repayment rate of the loans. It also recommended that the MFIs develop collateral demands that the clients can meet.
Key Words: Credit Management, Loan Performance, Microfinance
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DOI: http://dx.doi.org/10.61426/sjbcm.v2i2.152
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