Effect of Debt Management Practises on Loan Performance Among Deposit Taking Microfinance Institutions in Kenya

Abstract

It is worth emphasizing that debt management strategies perform a cardinal part in navigating challenges presented by the evolving global economy. Companies must carefully analyze their financial obligations and develop comprehensive plans to effectively manage their debts. This entails assessing the types of debt incurred, such as loans, credit lines, or bonds, and understanding the associated terms, interest rates, and repayment schedules. Subsequently, gaining a thorough understanding of their debt profile, companies can make informed decisions on how to allocate resources and prioritize debt repayment. They can explore options such as debt consolidation, renegotiating repayment terms with creditors, or refinancing to lower interest rates. These strategic moves not only help in reducing debt burdens but also enhance cash flow management and improve overall financial health. The study thus sought to determine the effect of debt management practices on loan performance of deposit taking microfinance institutions in Kenya. Specifically, the study sought to determine the effect of credit rationing, debt budgeting, debt structure, credit monitoring and debt analysis on loan performance of deposit taking microfinance institutions in Kenya. The study was guided by the theory of deb management, loanable funds theory and credit rationing theory. The study adopted a descriptive research design and a questionnaire as the main data collection instrument. The analysis of data was done using SPSS. Based on the findings, the study concluded that credit rationing, debt budgeting, debt structure, credit monitoring, and debt analysis all exhibit a significant positive relationship with loan performance. The study recommended that the deposit taking micro financial institutions in Kenya ought to analyze the debt of every borrower in relation to the existing interest rates in the market. The deposit taking micro financial institutions in Kenya ought to have a clear budget of the amounts of money to be advanced as loans. The study further recommended that the deposit taking micro financial institutions in Kenya ought to have regularly review its structure to match with the dynamic debt risks. The deposit taking micro financial institutions in Kenya ought to periodically monitor its loans to check on the loans that are due or that are almost due. The study finally recommends that the deposit taking micro financial institutions in Kenya ought to regularly analyze its existing debts.