Impact of Credit Reference Bureau on Loan Performance in Micro Finance Institutions in Kenya

Abstract

A descriptive research was done on the effect of credit reference bureaus on the performance of loan of micro finance organizations in Kenya. A descriptive design was used. The study targeted 13 licensed micro finance banks in Kenya. A census survey was done on 12 MFIs that existed between 2011 and 2017. Secondary data was used in the study. Data on loan was obtained from the respective bank’s annual financial statements for the 7 years from 2011 to 2017. Other relevant data was obtained from respective websites of MFIs, other official documents and relevant publications such as the bank supervision report. The study was based on the average annual data. The credit referencing and checks data was collected from Metropol Credit Reference Bureau Limited. The regression coefficient show that credit referencing bureau has a significant negative relationship with loan performance. The trend line of loan performance show that when the credit referencing bureau was introduced in 2013, the rate at which the non-performing loans rose reduced with other firms experiencing falling level of non-performing loans. The findings show that interest rate had a negative effect on loan performance. The results found that inflation rate had an insignificant negative effect on loan performance. The study concludes that CRB has a negative effect on loan performance in microfinance institutions in kenya. The study recommends that leadership of microfinance institutions should enhance the sharing of credit information to ensure that they reduce the levels of nonperforming loans in their institutions. The government of Kenya should institute policy measures to ensure that interest rates on loans and inflation rates are controlled in order to improve loan performance in microfinance institutions in Kenya. The study recommends that future researchers interested in this field of research might consider undertaking a similar study and increasing the period or grouping the data quarterly.