The relationship between credit risk management practices and non-performing loans: case study of Higher Education Loans Board
This research project highlights the historical development of higher education financing in Kenya, from free university education to cost sharing and to the current public/private sponsorship. There has been a growing student population, rising costs of education and an increased dependency by students on financial assistance due to slow growth of the economy, high levels of unemployment and the impact of poverty levels in the country. This is to be seen against the background of dwindling finances from the Government, who has been the main financers of higher education. HELB needed to come up with new ways of increasing its kitty which included the managing of its non- performing loans so that it be able to meet the high demand for fund from its clients (students). HELB being an institution mandated to manage the higher education loans programme in Kenya needed to change and modernize its strategies so as to achieve its mandate of putting in place a revolving fund. The study seeks to find out if there is any relationship between credit risk management practices put in place by HELB management and non- performing loans. Secondary data on the core credit management factors namely credit limit, screening, credit risk measurement, client database management and loan recovery ratios was sourced from HELB. Regression analysis was then used to assess which of the credit management factors. have had the greatest impact on non-performing loan reduction using the loan recovery as a proxy for non-performing loans. The study found that the dormant (non-performing) loan amount has been on a gradual decline.