Influence Of Lending Policy On The Quality Of Loan Portfolio Among Deposit Taking Savings And Credit Co-Operatives In Starehe Sub-County, Nairobi, Kenya

Abstract

The need for project financing remains high throughout the world as more countries require increasing supplies of utilities and infrastructure. At the center of the project financing structure are the lending institutions and the growing importance of credit and lending thereof. Sound loan portfolio of lending institutions in Kenya is a prerequisite for their stability, continuity and growth. Accordingly, a vast majority of previous studies have largely focused on commercial banks and Microfinance Institution in Kenya (MFIs) and financial performance thereof, leaving SACCOs and particularly deposit taking SACCOs with respect to the quality of loan portfolio largely unexplored. Against this backdrop, the present study sets out to investigate the influence of the lending policy on the quality of loan portfolio with reference to deposit taking SACCOs in Starehe Sub County, Nairobi County. More specifically, this study sought to establish the influence of the following variables on the quality of loan portfolio among deposit taking SACCOs in Starehe Constituency: character appraisal; collateral appraisal; capital appraisal and capacity to pay appraisal. Both theoretical and empirical literature pertaining to the study problem were reviewed. Whereas the theoretical literature focused on the theories and models underpinning the study, the empirical literature reviewed previous scholarly work in relation to the present study’s research objectives. This study used the descriptive research design. The target population consisted of all the twelve licensed deposit-taking SACCOs in Starehe Sub County, Nairobi County. The sample size of the study consisted of a census of the SACCOs in the target population. The study used both primary and secondary data. A structured questionnaire was used to collect data. Data was analyzed using descriptive statistics and represented using figures and tables. Mean and standard deviations was also used as measures of central tendencies and dispersion respectively. The study found that client character plays a significant role on how a client repays credit granted 60 (80%), most respondents indicated that client collateral appraisal reduces delinquency rate, loan provisions and bad debts, M=3.946 (SD=0.8523), almost all respondents indicated that lending institution performs client capital appraisal when advancing credit 60 (80%) and almost all respondents indicated that client has to demonstrate capacity to pay before credit is advanced 74 (99%).The study recommends that SACCOs should ensure full compliance with the lending policies in advancing loans to clients and also balance between collateral requirements and the individual capacity to pay when making their lending decisions. The study also recommends that SACCOs should continuously review their lending policies to enhance the evaluation of loan applications and to ensure applications are ranked according to merit. The study suggests that further research should be done on the influence of the lending policy on the quality of loan portfolio among deposit taking SACCOs in other Counties to establish if the findings will be the same.