Effect Of Credit Management Practices On Loan Performance In Self Help Groups In Kenya

Abstract

Self Help Groups (SHGs) play a major role in empowering members in order to improve their economic wellbeing. However, self-help groups in institutions like Catholic Archdiocese of Nairobi are faced with issues such as increase in non-performing assets, high default rates, and large amount of loans in default, and lower stakeholder dividends. Therefore, the general objective of this study was to assess effect of credit management practices (CMP) on loan performance in Catholic self-help groups in Kenya. Moreover, the specific objectives were to establish the influence of credit terms, client appraisal, credit collection policies and credit risk control on loan performance of Catholic SHGs in Kenya. The target population was 120 accountants in Catholic SHGs in Kenya. This study adopted a census method in selecting the population of the study. A semi structured questionnaire was deployed comprising of open as well as closed questionnaire which was administered to accountants in each of the groups. Data was analyzed by employing descriptive as well as inferential statistics such as regression and correlation. The results indicated that credit terms have positive and significant effect on loan performance of SHGs in Kenya. In addition, findings established that client appraisal has a positive and significant influence on loan performance of SHGs in Kenya. Further, the study found that credit risk control has positive significant effect on loan performance of SHGs in Kenya. In addition; the study found that credit collection policies have positive and significant influence on loan performance of SHGs in Kenya. The study concludes that credit collection policy was the most significant credit management practice affecting loan performance of SHGs in Kenya, followed by credit risk control, credit terms and client appraisal. From the findings, the study recommends that the leaders of SHGs in Kenya should set credit terms such as credit period, interest rate and fees, repayment schedule and also provide penalties information in order to lower the default risk from the borrowers. In addition, the study recommends that before issuing the loans, the leaders of SHGs in Kenya should evaluate the clients‟ ability to pay back the loans in order to ensure that the clients are credit worthy. Moreover, the study recommends that the leadership of SHGs should set credit policies in order to save time by ensuring that the same problem is not addressed repeatedly each time a decision is required.