Relationship between microfinance institutions regulations and loan portfolio performance in deposit- taking microfinance institutions in Kenya

Abstract

The Microfinance Act of 2006 and the Deposit Taking Microfinance Regulations of 2008 give legitimate, regulatory and supervisory structure for DTMs in Kenya. The significant role of the DTMs regulations is to mitigate risks, enhance stability and soundness of the MFI sector. Undoubtedly, the DTMs in Kenya improve financial performance due to reduction in NPLs.There view of past empirical studies failed to provide strong evidence on whether there exist a significant relationship between Microfinance finance regulations and loan portfolio performance in DTMs in Kenya. This study sought to determine the relationship between micro finance regulations and loan portfolio performance of DTMs in Kenya. The objective of the study was to determine the relationship between microfinance institutions regulations and loan portfolio performance of Deposit Taking Microfinance in Kenya.The population of this study was all licensed. DTMs in Kenya.The study was a census study as the population is very small hence sampling may not be significant. The study adopted data collection sheet to collect secondary data from the head office of the DTMs.The descriptive statistics and inferential was adopted to analyze data. The DTMs were found to apply credit Collection regulation to a great extent to improve on loan portfolio performance. The findings indicated that application of credit policy regulation improve loan portfolio performance. The regression results revealed that there existed a significant and positive relationship between credit collection regulation and loan portfolio performance. The study concluded that credit policy improve in loan portfolio performance in DTMs. The study concluded that application of credit collection regulation led to improve in loan portfolio performance due to lower NPLs and increase loan repayment. The study recommend that DTMs and other deposit taking financial institutions and credit unions should foster compliance with financial regulation such as credit policy as this would reduce cost on lending and improve on loan portfolio performance in DTMs. The management of the DTMs should also enhance compliance with credit collection regulations as this would lower non-performing loans, improve on loan repayment rate and hence improve loan portfolio performance.