EFFECT OF CREDIT RISK CONTROL ON FINANCIAL PERFORMANCE OF MICRO FINANCE INSTITUTIONS IN KENYA
Abstract
Credit management systems play a crucial role in determining the success of microfinance institutions in Kenya. Interest received on initial monies granted to small and medium-sized enterprises who subject the institution to credit risk accounts for the vast majority of the income generated by these banks. Risk of not getting back principal plus interest is what credit risk is all about. For Kenya's microfinance industry, the link between credit risk Control and bottom line results is murky. The banking industry produces the majority of the available literature. That's why we decided to look into it; it's clearly a promising field. While the majority of academics agree that credit risk management strategies have an impact on financial performance, some have cast doubt on this finding. This study’s objective was to explore on the effect of Credit Risk Control on Financial Performance of Micro Financial Institutions in Kenya. The study adopted a descriptive survey research design. The target population consisted of credit managers of all 52 Microfinance Institutions operating in Kenya as captured in the Micro Finance Institutions in Kenya (AMFI) data base. Census technique was applied on all the targeted institutions. Primary data was collected using a questionnaire as the data collection instrument and secondary data was collected from financial reports of the respective Micro Finance Institutions in Kenya, published journals and association of Micro Finance Institutions reports. Descriptive statistics and inferential statistics analysis were used. Credit Risk Control had a direct good impact on Financial Performance according to the survey under descriptive analysis. Credit Risk Control was found to have a positive correlation with Financial Performance using inferential statistics. In conclusion, the survey found that Credit Risk Control practice was critical to the effective financial performance of Micro Finance Institutions firms. As a result, the study recommended that the management of different Micro Finance Institutions adopt Credit Risk Control Practice. The research relied solely on information collected from the database of the Association of Micro Finance Institutions in Kenya (AMFI). Therefore, additional study in this field should concentrate on expanding the size of the census to encompass a greater number of unregistered micro finance institutions not in AMFI database across the country using comparable variables and different technique.
Key words: Credit Risk Control, Credit Risk Management, Financial Performance
CITATION: Kadima, A. W., Maingi, M., & Sindani, M. N. (2022). Effect of credit risk control on financial performance of micro finance institutions in Kenya. The Strategic Journal of Business & Change Management, 9 (4), 1270 – 1282.
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DOI: http://dx.doi.org/10.61426/sjbcm.v9i4.2492
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