CREDIT REFERENCING ON LOAN PERFORMANCE OF DEPOSIT TAKING MICROFINANCIAL INSTITUTIONS IN MOMBASA COUNTY

ROBERT NDORO CHAKA, ABDULLAH IBRAHIM, PhD

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.


Full Text:

PDF

References


Anderson, R. (2016). The credit scoring toolkit: Theory and practice for retail credit risk management and decision automation. Oxford, United Kingdom: Oxford University Press.

Association of Microfinance Institutions Kenya (AMFI) (2020). Microfinance Sector Report of 2020 (6th edition.). Retrieved from https://amfikenya.com on 10th July 2021.

Bailey, J. A. (2016). Strengthening control and integrity: A checklist for government managers. [online] Available at: http://www.businessofgovernment.org/sites/default/files/BaileyReport.pdf. Accessed: 30 September 2021

Byaruhanga, I. (2017). Credit terms, credit accessibility and performance of agricultural cooperatives in Rwanda (Doctoral dissertation).

Central Bank of Kenya (2020). Directory of licensed Microfinance Banks in Kenya. Retrieved from https://www.centralbank.go.ke/wp-content/uploads/2016/06/Directory-of-Licenced-Microfinance-Banks.pdf on 10th July, 2021.

Cooper, D. R., & Schindler, P. S. (2013). Business research methods, (12th, edition). McGraw-Hill Publishing, Co. Ltd. New Delhi-India.

Creswell, J.W. (2014), Research Design: Qualitative, Quantitative, and Mixed Methods Approaches. Sage publications, London.

Emilios C. C Galariotis, Christophe Villa, Nurmukhammad Yusupov. Recent advances in lending to the poor with asymmetric information. The Journal of Development Studies, Taylor & Francis (Routledge), pp.1. ff10.1080/00220388.2010.527956ff. ffhal-00722838f

Ewool, L. M., & Quartey, J. A. (2021). Evaluation of the Effect of Risk Management Practices on the Performance of Microfinance Institutions. International Journal of Academic Research in Accounting Finance and Management Sciences, 11(1), 211-240.

Jagongo, A. O., & Kerage, P. M. (2015). Credit Information Sharing and Performance of Commercial Banks in Kenya. Global Journal of Commerce & Management perspective, 3(6), 18-23

Kagoyire, A. (2018), Effect of credit management on the financial performance of commercial banks in Rwanda. International Journal of Business and Management Review, .6(1), pp.57-69

Kinyua, A., (2017). Effects of Credit management practices on loan performance of commercial banks in Nyeri County, Kenya. European Journal of Economic and Financial Research 2(2).

Klein, N. (2013). Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance. Washington DC: International Monetary Fund.

Kitonyi, J. M., Sang, W., & Muriithi, D. (2019). Non-performing loans and financial performance of microfinance institutions in Kenya. The Strategic Journal of Business & Change Management, 6 (3), 840 – 848.

Kothari, C. R. (2014). Research Methodology: Methods and Techniques. New Delhi, New Age International (P) Ltd Publishers.

Ledgerwood, J., Earne, J., & Nelson, C. (2017). The new microfinance handbook. Washington, DC: World Bank.

Lin, C., Ma, Y., & Song, F. (2012). What Drives Bank Operating Efficiency? The Role of Bank Competition and Credit Information Sharing. Research Handbook on International Governance, 87.

Mabvure, T., Gwangwava, E., Faitira, M., Mutibvu, C., & Kamoyo, M. (2012). Non-Performing Loans in Commercial Banks: A case of CBZ Bank Limited In Zimbambwe. Interdisciplinary Journal of Contemporary Research in Business, 4(7), 1-22.

Mburu, I., Mwangi, L., & Muathe, S. (2020). Credit Management Practices and Loan Performance: Empirical Evidence from Commercial Banks in Kenya. International Journal of Current Aspects in Finance, Banking and Accounting, 2(1), 51-63. https://doi.org/10.35942/ijcfa.v2i1.105

Microfinance Barometern Report. (2018). Microfinance Barometer 2018. Paris, France : Convergences Publication.

MicroSave (2018), Market led solutions for financial services. MicroSave publication.

Ndongo, J. M. (2019), Effect of credit reference bureau on financial performance of Savings and Credit Cooperative Societies in Kenya. Journal of Finance and Accounting, 3(3), Pp. 187

Ngeno, G. K. (2020), Relationship between credit information sharing and MFIs Non-performing loans in Kenya. Unpublished Thesis, University of Nairobi, Kenya.

Njanike, K. (2016). The impact of effective credit risk management on bank survival. Annals of the University of Petroşani, Economics, 9(2), 173-184.

Njeru, D. G. (2021), Credit reference bureau functions and loan performance of commercial banks in Kenya. Unpublished Thesis, Kenyatta University, Kenya.

Perways, A., & Krishna, P. M. (2017). The role of microfinance in empowerment of women: An empirical study in Somali regional state in Ethiopia.

Saba, I., Kouser, R., & Azeem, M. (2012). Determinants of Non-Performing Loans: Case of US Banking Sector. The Romanian Economic Journal, 44 (6), 1-12.

Slama, J. (2018), Risk management for African Microfinance Institutions. The Global Treasurer publication. Retrieved from https://www.theglobaltreasurer.com/2008/11/18/risk-management-for-african-microfinance-institutions/ on 7th July, 2021.

Wambugu, M. K. (2017). The effect of debt collection strategies on financial performance of local authorities in Kenya (Doctoral dissertation).

Wangai, P. M. & Mungai, J. N. (2019). Financial management practices and loan performance of micro finance institutions in Starehe Constituency, Nairobi County, Kenya. International Academic Journal of Economics and Finance, 3(3), 117-135.

World Bank Public credit registry report (2018). https://data.worldbank.org/indicator/IC.CRD.PUBL.ZS




DOI: http://dx.doi.org/10.61426/sjbcm.v10i2.2625

Refbacks

  • There are currently no refbacks.


Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.

PAST ISSUES:
20242023202220212020201920182017201620152014
Vol 11, No 4 [2024]Vol 10, No 4 [2023]Vol 9, No 4 [2022]Vol 8, No 4 [2021]Vol 7, No 4 [2020]Vol 6, No 4 [2019]Vol 5, No 4 [2018]Vol 4, No 4 [2017]Vol 3, No 4 [2016]Vol 2, No 2 [2015]Vol 1, No 2 [2014]
 Vol 11, No 3 [2024] Vol 10, No 3 [2023] Vol 9, No 3 [2022]Vol 8, No 3 [2021]Vol 7, No 3 [2020]Vol 6, No 3 [2019]Vol 5, No 3 [2019]Vol 4, No 3 [2017]Vol 3, No 3 [2016]Vol 2, No 1 [2015]Vol 1, No 1 [2014]
 Vol 11, No 2 [2024] Vol 10, No 2 [2023] Vol 9, No 2 [2022]Vol 8, No 2 [2021]Vol 7, No 2 [2020]Vol 6, No 2 [2019]Vol 5, No 2 [2018]Vol 4, No 2 [2017]Vol 3, No 2 [2016]  
 Vol 11, No 1 [2024] Vol 10, No 1 [2023] Vol 9, No 1 [2022]  Vol 8, No 1 [2021]Vol 7, No 1 [2020]Vol 6, No 1 [2019]Vol 5, No 1 [2018]Vol 4, No 1 [2017]Vol 3, No 1 [2016]   


Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.