Credit management techniques applied by financial institutions offering micro credit in Kenya
Abstract
Over the years, banks have been absent in the provision of micro credit to the
small and micro enterprises. The sector has remained the preserve of microfimmce
Institutions (MFls). The liberalization of the financial sector has increased
competition: hence banks are looking for avenues to expand their revenue base.
The presence of a large undeserved market in the small and micro credit sector
provides an opportunity.
This paper highlights the issues that affect performance of the banks and MFls in
the provision of micro credit; their credit management models and the impact of
the models and related issues on the default rate of the institutions.
The paper observes that banks lend to the sector using the individual lending
model, while majority of the Micro-finance Institutions (MFls) use group-based
model (Grameen).
The study finds that properly administered credit programs do well whether
individual or group-based loans. In case of poor administration, individual loans
are more likely to perform poorly.
The study finds that Bank products have a higher default rate than MFls since
MFls treat micro credit as core and therefore expend effort and time on the
services.
The study concludes by encouraging banks to participate more in the provision of micro credit services using methods adopted by successful MFIs.
Sponsorhip
University of NairobiPublisher
School of Business