Relationship between credit appraisal process and the level of non-performing loans of the women enterprise fund loans offered through financial intermediaries in Kenya
Granting credit to customers is an important activity for any lending institution thus the importance of credit risk management in these institutions .Lenders must therefore ensure a thorough credit evaluation process to fore stalk default. Factors that lead to the high levels of NPLs in the lending institutions includes; weak credit appraisal process, insider lending, high interest rates and weak credit policies among other factors. Statistics from the Ministry of Gender indicates that only Sh71 million of the Sh265 million of the Women Enterprise Fund loans advanced, to women groups since 2007 has been repaid, putting to doubt recovery of the remaining Sh 194 million. This shows that there exists a high rate of non performing loans of the women enterprise fund loans. The purpose of this study was to analyse the credit evaluation process adopted by the financial intermediaries offering WEF loans in Kenya, to analyse the level of nonperforming loans related to the WEF offered through the financial intermediaries in Kenya and to establish whether there is any relationship between the credit evaluation process and the level of nonperforming loans in the WEF loans offered through financial intermediaries in Kenya. This study was a survey of all financial intermediaries offering women enterprise fund loans. The population of interest was all the financial intermediaries that offer the WEF loans. This study used primary data, which was collected by way of questionnaires. Both descriptive and inferential statistics were used to analyze the data. The study found that most of the organizations get their funds from foreign donors, and existing credit policy is the most important factor in establishing a credit control policy. Further the study conclude that encouraging movement of surplus money is the most important objective in credit policy and that credit risk manager are used in majority of the organizations in approving loans with very high approval limits ceiling. The study further established that credit period of funds do increase the level of loans defaults while credit appraisal through frequency of loan reviews and considerations made during credit approval do decrease the level of non performing loans of WEF. Moral hazard leading to defaults also happens when loans are not subjected to normal objective credit assessment before disbursement. The study recommends the following; financial intermediaries offering the women enterprise fundi loans should have clear credit policy with proper monitoring and review from time to time in order to reduce the cases of NPL.