Credit Management Practices and Financial Performance of Microfinance Institutions in Nairobi Central Business District, Kenya
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The link between credit management practices and financial performance remains unclear especially in the Microfinance Sector in Kenya. Though there are studies on performance of MFIs in Kenya, few have sought to explain the same in view of credit management practices. Much of the available local empirical literature is in the banking context. Hence, this remains an area of empirical interest: this formed the motivation of the study. The study sought to determine the effect of credit management practices (client appraisal, credit risk, collection policy, and credit terms) on financial performance of MFIs in Nairobi Central Business District, Kenya. A descriptive survey design was adopted for the study; the target population comprised of 165 members of staff of the MFIs studied. Primary data was collected using questionnaires. Purposive sampling was used to pick 165 respondents. Of the 165 questionnaires dispatched, 158 were filled and returned. Descriptive analysis and multiple regression analysis were used to analyze data. The study found that credit risk control, client appraisal, collection policy and terms of credit were all statistically significant in explaining financial performance of the MFIs studied. The study further established that credit risk control, client appraisal, collection policy and terms of credit had a positive relationship with financial performance. The study concludes that unit increase in credit risk control, client appraisal, and collection policy and terms of credit results to better financial performance of MFIs. Hence, the MFIs should endeavour to invest more on the credit management practices as a way of improving their financial performance. The study’s contribution to knowledge was equally highlighted.