A Survey of Credit Risk Management Practices by Microfinance Institutions in Kenya

Abstract

The survey was an investigation into the credit risk management practices by microfinance institutions (MFIs) in Kenya. The objectives of the study were to identify the major types of credit risk that MFIs face and to examine the credit risk management pracitices adopted by microfinance institutions. The survey was targeted at a population of 35 microfinance institutions but only 23 responded. Primary data was collected using a combination of "drop and pick later & "self administered " structured questionnaires. The survey was set to determine the credit management methods applied by microfinance institutions when they offer credit and the factors affecting them. After data collection, examination for completeness, reliability and constituency was conducted on the data. The data were analyzed using descriptive statistical package for social studies (SPSS) was used. To determine credit risk management practices, this study undertook content analysis of data. Frequency and percentage distribution tables were used to display the results of the survey. Likewise, descriptive, technique, comparative analysis and factor analysis were applied to determine factors affecting credit risk management and their consideration. From the study we see that microfinance institutions had fully fledged credit control departments which had been in operation for a period of between five and fifteen years. The MFIs also had credit control committees . All the firms covered in the survey had a clearly defined and documented credit control policy . Most of the credit control activities were organized within the credit control department. Most of the companies had their credit policy goals formulated and implemented by the credit committees. All the MFIs reviewed their policy periodically. A few reviewed their credit policy monthly. credit scores for customers was the most applicable factor for determining credit period.Most of the MFIs covered in the survey granted different payment periods for different customers . MFIs observed strictness when offering credit to their clients.