Effect of credit risk management procedures on financial performance among microfinance institutions (MFIS) in Kenya: A case of MFIS in Nairobi County

Abstract

The purpose of the study was to analyze the credit risk management procedures adopted on financial performance of microfinance institutions in Kenya. Specifically, the study sought to determine the extent to which risk identification, risks monitoring procedures, and risk analysis and assessment procedures are applied in credit risk management by microfinance institutions in Kenya and their overall effect on the financial performance of the MFIs. The study adopted the descriptive design. The population of the study was consisted of credit managers and officers in the 54 Microfinance Institutions in Nairobi County. The researcher used the questionnaires to collect the data. The questionnaire was first pretested on credit managers and their assistants whose results were included in the final results. The data collection was done through a combination of drop and pick and self-administration methods. Data analysis was based on descriptive and inferential statistics. Data analysis was done using the Statistical Package for Social Sciences (SPSS). The results were presented using table and charts. The study found out that the organization considered risk identification, risks monitoring, risk assessment, risk analysis as a process in credit risk management. The study established that these procedures were important as they ensured that the risk management function was established throughout the whole corporation. The study concludes that the management of the Microfinance institutions are enhancing their credit risk management by putting in place measures to curb the risk and this enhances efficiency of services of the institutions. The study recommends that stiff measures should be put in place to run the credit risk management in order to enhance positive performance in the Microfinance institutions. The MFIs should also spearhead in application of procedures which are applied in the management of Microfinance institutions. Lastly, the study recommends further studies to be done on the effects of credit risk management procedures on financial performance of Micro finance institutions in Kenya.