Relationship Between Credit Risk Management Techniques and Loan Performance of Sasra Regulated Deposit Taking Saccos in Nairobi County.

Abstract

Credit risk management is considered to be integral to the loan performance for SACCOs. In accomplishing this all important function, SACCOs employ different techniques to mitigate risks they face relating to their lending activities. The purpose of the study was to investigate the relationship between credit scoring, credit monitoring and credit risk diversification and loan performance among DT-SACCOs headquartered in Nairobi County. A descriptive study of Credit risk management techniques used by SACCOS was conducted. The study focused on 36 DT-SACCOs headquartered in Nairobi County. The study used both primary and secondary data. Primary data was collected using structured and semi-structured questions and open and close ended questions. These questions were presented to Credit Managers and Credit Officers. The data was analyzed by use of summary statistics, including means, standard deviation and percentages to measure the interrelationships between variables. Graphs were also used to display information of the analyzed results to ease interpretation. A regression analysis was done to determine the relationship between the identified techniques and loan performance. Results from the study suggest that there was a significant positive correlation between credit risk scoring and loan performance. The study further established that there was a positive correlation between credit monitoring and loan repayments though the relationship was not significant as the case of credit risk scoring. Moreover, this study found that credit scoring significantly influences the ability of borrowers to repay their loans. The conclusion drawn from the study is that credit risk management techniques play a critical part in determining the Loan performance of DT-SACCOs headquartered in Nairobi. It is suggested that more emphasis should be placed on credit monitoring and credit risk diversification to reduce the risk exposures of SACCOs and other financial intermediaries.