The effect of credit risk management on financial performance of deposit taking microfinance institutions in Kenya
Abstract
This study sought to investigate the effect of credit risk management of financial
performance of Deposit Taking Microfinance Institutions (DTMI) licensed by the Central
Bank. The research design used in this study was descriptive research design. The study
involved an in depth study of credit risk management and the relationship between the
two variables i.e. credit risk management and the financial performance of DTMI was
described extensively. Primary data was collected using questionnaires. Secondary data
collected from the Deposit Taking Microfinance Institutions (DTMI) licensed by the
Central Bank annual reports (2011 - 2014) was used. Of the 9 licensed DTMIs in Kenya,
full data was attained from 6 of them and thus the study concentrated on the 6 DTMIs.
The data collected from the annual reports of the DTMIs was analyzed using multiple
regression analysis. In the model return on asset (ROA) was used as the profitability
indicator while Default rate, cost per loan asset and bad debt cost as credit risk
management indicators. The study established that cost per loan asset, and bad debt cost
and default rate are significant credit risk management indicators that have an inverse
effect on financial performance of DTMFI. The study also results indicated that MFIs use
credit risk control in Credit risk Management. The study further established that interest
rate risk, liquidity risk, credit risk and operational risk affects performance of loans in the
MFI. The recommendation is to advise MFIs to enhance their credit risk control this will
help in decreasing default levels as well as non-performing loans. This will help improve
financial performance.
Publisher
University of Nairobi
Description
Thesis