Credit risk management strategies, organizational factors and performance of micro finance institutions in Kenya
The study was on the credit risk management strategies, organizational factors and performance of micro finance institutions in Kenya. The study was anchored on the asymmemc information theory which brings about problems of moral hazard and adverse selection. As a result, risk management is increasingly becoming an important indicator of success of financial institutions. The study had two objectives; first, the effect of credit risk management strategies on performance of MFIs and secondly, to determine the effect of organizational factors on the relationship between credit risk management strategies and 1-1FI performance. Credit risk management strategies were operationalized as borrower screening and monitoring, long-term customer relationship, credit rationing and loan product diversification. Performance was measured in terms of volume of loans, number of loanees, volume of delinquent loans and ratio of non-performing loans to performing loans. Organizational factors were age, size and management structure of MFIs.The study adopted a descriptive crosssectional correlation survey design. The target population of the study was all the 33 MFls registered with Association of micro finance institutions in Kenya (AMFI) with the target respondents being the credit Iloan officers. The study analysed data through descriptively as well as through zero order correlation, first order partial correlation and multiple regression Factor analysis was employed to determine underlying factors for credit risk management strategies, management structure and performance. The study found out that there is a significant negative correlation between borrower screening and monitoring and volume of delinquent loans (P-value=O.OOl). The portion of performance that does not depend on the credit risk management strategies was also significant (P-value=O.03). In addition, the organizational factors significantly moderate the relationship. However, the direction and magnitude of moderation varies. The study recommends that MFls keen on improving performance should aim at enhancing borrower screening and monitoring and size as well as adopt inflexible structure. The policy implication of the study is that policies to enhance borrower screening and monitoring should be incorporated into the processes and system design of MFIs. Suggestions for further research are also given.