CREDIT RISK MANAGEMENT ON FINANCIAL PERFORMANCE OF DEPOSIT TAKING MICRO-FINANCIAL INSTITUTIONS IN MOMBASA COUNTY
Abstract
The purpose of this study was to investigate the effect of credit risk management on financial performance of deposit taking MFIs in Kenya. The study employed a cross-sectional descriptive research design. The target population of the study was management of the 6 deposit taking MFIs which were licensed by CBK and had fully-pledged branches in Mombasa. The study employed stratified sampling technique whereby the target population was divided into different groups and those with similar characteristics were grouped in the same stratum then sample for the study was selected at random from each stratum. The study used primary and secondary data. A structured questionnaire was used to collect the primary data. Descriptive and inferential statistics were used to analyze information generated from respondents. Descriptive statistics analysis included mean and standard deviation while inferential statistics included correlation analysis and multiple regression analysis by use of Statistical Package for Social Science (SPSS) version 25. The study findings established that the loan applicant character was thoroughly performed by checking the applicant’s background before credit approval consideration. The client character appraisal has a significant effect on the ability of the client to honor his/her obligations to the loan. The microfinance analyses collateral characteristics before approving loan. Also the borrower’s capacity is critically appraised by the microfinance prior to loan approval and the microfinance utilizes credit score referencing whenever making decisions on credit. The study concluded that the Microfinance monitors borrower’s performance after issuing the loan. This is essential for tracking the borrower’s ability to repay over time and minimizes the rates of default. Microfinance conducts continuous risk assessment of the loan status and takes corrective remedies. Also Microfinance has in place credit risk monitoring systems and they have adopted internal risk rating systems. The study recommended that the Microfinance should report policy exceptions promptly to avoid uncoordinated responses. In addition, the microfinance should plan and execute collection enforcements geared towards ensuring loan remittances are in order. The study recommended that Microfinance should seek to recover defaulted amount from the guarantor after recovery from the borrower hits a snag. The microfinance should have dynamic client follow-up procedures.
Key Words: Client Appraisal, Credit Risk Monitoring, Collection Policy, Credit Terms
CITATION: Leja, C. R., & Ibrahim, A. (2022). Credit risk management on financial performance of deposit taking Micro-financial Institutions in Mombasa County. The Strategic Journal of Business & Change Management, 9 (4), 126 - 138.
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DOI: http://dx.doi.org/10.61426/sjbcm.v9i4.2400
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