Credit Risk Assessment and Loan Repayment among Development Financial Institutions. A Case of Kenya Industrial Estates Limited
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Date
2023
Authors
Okero, Enock Omwenga
Waweru, Fredrick Warui
Journal Title
Journal ISSN
Volume Title
Publisher
EANSO
Abstract
The informal sector of the Kenyan economy continues to remain the largest
employer of a majority of the population. However, it is bedevilled by a
variety of challenges, chief of them being inadequate access to credit. To
address this, the government has set up development financial institutions
such as Kenya Industrial Estates (KIE) and mandated them with the role of
availing loans to the sector in order to spur economic growth. The low rate
of loan repayment advanced by Development Financial Institutions (DFIs)
has necessitated the need to investigate the cause(s) of this adverse trend.
This research was undertaken to probe how credit risk assessment affects
loan repayment in development financial institutions, with Kenya Industrial
Estates Ltd as a case study. The specific objectives were to find out how
borrowers’ character and capacity affect loan repayment at KIE. A
descriptive design guided the study with primary data being obtained through
a questionnaire, whose reliability was tested and found to be acceptable with
a Cronbach alpha of 0.795. A census was conducted on all 28 branches in
Kenya. Two respondents from each branch were selected purposively to
result in a total of 56 respondents. Regression analysis suggested that
borrowers’ character and capacity positively and significantly affected loan
repayment. The null hypotheses for the two variables were subsequently
rejected. Spearman’s correlation coefficient for the two predictor variables
further revealed that they influenced loan repayment positively. The study
concludes that borrowers’ character and capacity have a profound effect on
loan repayment among DFIs. The study recommends that DFIs need screen
borrowers’ credit history and debt-to-income ratio thoroughly before
advancing loans in order to improve loan repayment.
Description
Article
Keywords
Credit Risk Assessment, Loan Repayment, Character, Capacity
Citation
Okero, E. O.& Waweru, F. W. (2023). Credit Risk Assessment and Loan Repayment among Development Financial Institutions. A Case of Kenya Industrial Estates LimitedInternational Journal of Finance and Accounting, 2(1), 21-29. https://doi.org/10.37284/ijfa.2.1.1197.