The Relationship Between the Use of the C's of Credit and the Non Performing Loans of Micro Finance Institutions in Kenya
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Date
2008Author
Wanyonyi, Albert S
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
The Microfinance sector has in the recent past become a major player in the Kenyan
economy. As such, for Microfinance institutions to sustain viable credit programmes, the
criteria for assessing credit risk are essential so as minimize the loan default rates. One of
the criteria for establishing the creditworthiness of a borrower is the C's of credit model.
The two objectives of this study were:-
• To establish the extent of use of the C's of credit risk appraisal model by MFls in
Kenya
• To establish the relationship between the use of the C's of credit risk appraisal model
and the level of non performing loans of MFls in Kenya.
To satisfy the objectives of the study, the data was collected from 15 Microfinance
institutions using questionnaires. The data was analyzed by use of statistical package for
social sciences (SPSS). The results have been presented in form of frequency tables,
mean, standard deviation and percentages. The study also made use of regression analysis
to establish the relationship between the use of the C's of credit risk appraisal model and
the level of non performing loans. A t-test was carried out to measure the significance of
the sensitivity of non-performing loans to the respective 6 C's. On assessing the
significance of the respective coefficients, the study was able to deduce which of the 6
C's have a greater impact in determining the level of non-performing loans in
Microfinance institutions.
The findings of this study are that the C's of credit are essential in credit risk appraisal,
and that the most critical factors of the C's are Capacity followed by Contribution and
Character in that order. These findings are consistent with the assertions by Mwirigi
(2006) who found that Capacity was the most considered factor followed by
Contribution, then Character and Commonsense in credit risk appraisal by Microfinance
institutions. This study further established that although Collateral is the most talked
about among the C's of credit, it is the least important especially in lending to micro and
small enterprises.
Citation
Masters of business administrationSponsorhip
University of NairobiPublisher
School of business,University of Nairobi