CREDIT PORTFOLIO MANAGEMENT AND LOAN PERFORMANCE OF MICROFINANCE INSTITUTIONS IN MOMBASA COUNTY, KENYA

WILFRED KILIMO MWATATI, MOSES WEKESA, PhD

Abstract


This study assessed the effect of credit portfolio management on loan performance in deposit taking Microfinance banks in Kenya. The study specific objectives are to establish the effect of credit portfolio planning, client screening, loan limit reduction and credit portfolio control on loan performance. The theories guiding the study were modern portfolio theory, Moral hazard theory, Value Based Portfolio Theory, and loanable funds theory. The study used 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 unit of observation was management staff of MFIs drawn from finance, operations and credit departments. The study employed stratified sampling technique.  The study employed Yamane formula to derive a sample of 54 respondents. 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 analysis included mean and standard deviation while inferential statistics includes correlation analysis and multiple regression analysis by use of Statistical Package for Social Science (SPSS) version 29. The inferential statistics revealed that credit portfolio planning, client screening, loan limit reduction, and credit portfolio control had a positive significant effect on loan performance. The findings of the correlation analysis results showed that client screening, loan limit reduction, and credit portfolio control is moderately and positively correlated with loan performance. The regression analysis finding also showed that client screening, loan limit reduction, and credit portfolio control has a positive and significant effect on loan performance. Further, it is concluded that the MFI monitors and evaluates disbursed credit regularly and that the credit of the borrower is reviewed continuously. Also the MFI has credit flow-up action plans in place and that the MFI requires collateral from high risk credit applicants. The study recommended that the management of deposit taking MFIs should make loan pricing decisions to promote credit repayment as it was found to have a significant effect on loan performance. The MFI should determine optimal loan recovery period prior to credit issuance.

Key words: Credit Portfolio, Client Screening, Loan Limit, Credit Portfolio Controls

CITATION: Mwatati, K. W., & Wekesa, M. (2024). Credit portfolio management and loan performance of microfinance institutions in Mombasa County, Kenya. The Strategic Journal of Business & Change Management, 11 (4), 482 – 495. http://dx.doi.Org/10.61426/Sjbcm.v11i4.3100


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DOI: http://dx.doi.org/10.61426/sjbcm.v11i4.3100

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