Credit Reference Bureau Effect on Financial Performance of Non-deposit Taking Micro Finance Institutions in Kenya

Abstract

The constant challenges that confront local NDT MFIs have brought into focus the survival and sustainability of NDT MFIs in Kenya. With the coming of Credit reference bureau, we have witnessed better credit market, lower bad debts, reduced interest rates, increased profitability, general financial performance and improved competition within the sector. However, no empirical research have critically examined the relevance of credit reference bureaus and its impact on financial performance of NDT microfinance institutions in Kenya. The study sought to establish the effect of credit reference bureau service on financial performance of NDT microfinance institutions in Kenya. This study employed descriptive design by use of questionnaire.Target population was four (4) non deposit microfinance institutions registered by AMFI Kenya as at Dec 2012 namely ECLOF, AAR Credit, MUSONI and Juhudi Kilimo. The study used closed ended questionnaires which were administerd to 21 respondants drawn from the 4 NDT MFIs. When asked whether in their opinion, CRB information translated into a decrease in nonperforming loans, fifty seven of the respondents think that the impact is of a low extent, but twenty-nine percent think that the impact is greater. The standard deviation of 1.10 suggested a consensus from the respondents on this issue. This study recommends that the Association of Microfinance Institutions strengthening of the Non deposit taking MFIs to come up with mitigation measures to control the external factors that interfere with the credit ratings of their customers; with a possible measure to cushion non deposit taking MFIs from weak laws that could lead to blind loaning or borrowing. From the study and subsequent conclusions, the researcher recommends a further research on the factors prohibiting NDT MFIs from using CRB information to solve moral hazard problem in Kenya