Effect Of Credit Management Processes On Financial Performance Of Microfinance Institutions In Coastal Region

Abstract

Any firm that deals in credit must have credit management processes in place. When done correctly, the process makes sure that the customer pays for the services received. The impact of credit management practices (credit risk control, client credit appraisal, credit terms and conditions, and credit collection strategy) on the financial success of MFIs has received far less attention. Thus, the study in question sought to investigate the effect of credit management processes on the financial performance of MFIS in Coastal region. The study was guided by the following objectives; to determine the effects of credit appraisal on financial performance of MFIs in Coastal region, to establish the effects of credit risk control on financial performance of MFIs in Coastal region, to assess the effects of credit terms on financial performance of MFIs in Coastal region and to find out the effects of credit collection policy on financial performance of MFIs in Coastal region. The study used a descriptive research design. Primary data was collected using questionnaires. SPSS was used to analyse the collected data. The descriptive analysis of the data will used frequency, percentage, mean, and standard deviation. On the other hand, multi linear regression is a technique used in inferential statistics that was used to establish the link between dependent and independent variables. The results of the study revealed that Credit appraisal had a direct and statistical impact on the financial performance of Micro Finance Institutions in coastal region, Kenya. Another key finding of the study was that there is constant review and updating of client’s credit worthiness and that the borrower is made to understand the terms of the loan which helps in reducing the risk of default. The researcher recommends that Microfinance Institutions should embrace working closely with their clients, providing not just financial services but also financial education and business support since can improve the credit risk control process by increasing borrowers' financial literacy and their ability to manage their loans effectively.