dc.description.abstract | Banks are among the largest lenders of retail, commercial and corporate entities. Aside from
deposit taking, lending forms a major part of banks income generating activities which means that
depending on how lending as a business activity performs, the concerned bank may either make
profits or losses. A loan that falls in default before its maturity, known as a non-performing loan
is one of the ways that a bank can get into losses even when the risk has been calculated and
predetermined. It has been noted by world bank and other notable sources that loses arising from
non-performing loans keep rising in the Kenyan retail banks. If not well addressed, these loses
can eventually lead to a gradual rise in the cost of credit for future borrowers which would push
access to credit beyond the reach of many small and medium scale enterprises as well as
individuals. With access to credit being a critical factor of economic growth, such an outcome can
greatly affect the general economy. However, the loses from non-performing loans can be
mitigated or reduced by using aggressive collection strategies where the banks or the affected
lenders would use either their own in-house collection systems or outsource the services to firms
that specialize in debt collection. The success in recovery of the otherwise bad debts will be
determined by how effective the chosen system is. This study therefore sought to investigate how
effective outsourcing of debt collection is to banks that elect to use that strategy in recovery of
their non-performing loans. The study was guided by four specific objectives that included; to
establish how a private debt collection firm’s experience influences collection of non-performing
loans; to assess the influence of credit information sharing on the collection of non-performing
loans; to analyze the influence of private firms spread into different geographical locations on the
collection of non-performing loans and to examine how remuneration of staff by private
collection firms influence the collection of non-performing loans. The study which adopted a
descriptive research design was undertaken using Barclays bank of Kenya Ltd as the case study
and the findings were envisioned to be useful in guiding how similar organizations in the business
of lending can best tackle the challenge of a growing non-performing loan portfolio. The
researcher selected a sample of 48 respondents from Barclays bank and 11 respondents from
Quest Holdings Ltd using stratified random sampling. The study employed use of questionnaires
and interview schedules to obtain primary data. Data analysis tools used included SPSS and
Microsoft excel which gave statistical output in form of percentages, tabulations, means and other
central tendencies. Tables were used to summarize responses for further analysis and facilitate
comparison. Regarding how a private debt collection firm’s experience influences collection of
non-performing loans, the study concludes that by outsourcing, the bank is able to access best
business practice, expertise, technology and other resources that may be too expensive and
unjustified to be built internally or hired on full time basis. Further the study concludes that
collection staff of a private debt collection firm are adequately trained in collection and recoveries
before being deployed to work and that their long years of operations gives them an upper hand
for the tasks allocated by their clients. On the influence of credit information sharing on the
collection of non-performing loans, the study revealed that credit information sharing enhances
collection from customers whose contacts may have been lost. The study concluded that the
collection firms have a better access to the national database of customer information as compared
to the banks collection departments. In addition, there is a stronger collaboration and and easier
sharing of information among the debt collection firms which is not possible with the collection
departments in the banks. This study therefore recommends that the banking sector should
contract debt collection firms because these firms have better trained and experienced staff, access
to the relevant technology and enjoy economies of scale hence they are flexible in their location. | en_US |