Factors influencing the credit risk management techniques used by microfinance institutions in Kenya

Abstract

This study sought to investigate the credit risk management techniques used by Microfinance Institutions in Kenya. The objectives of this study were, to determine credit risk management techniques employed by microfinance institutions in Kenya, to identify any differences in credit management techniques employed by commercial banks in micro credit versus those employed by other MFIs, to determine if the commercial banks' 6 C's (Character, Capacity, Conditions, Collateral, Contribution, and Common sense) model for assessing credit risk is important in the credit appraisal process of microfinance institutions in Kenya and to determine whether there is a relationship between credit management techniques and the default rate of institutions offering Microfinance services. The scope of this study was limited to Nairobi. The study adopted both the descriptive and exploratory research designs. The target population of this study was the micro finance institutions (MFIs) and banks offering micro credit in Kenya. There are well over 36 microfinance institutions in Kenya. The study was carried out by use of questionnaires sent out to the respondents, the responses of which were analyzed to reach a set of conclusions. Stratified random sampling technique was used. The researcher also employed some elements of convenience sampling to come up with a sample of 36 institutions. Data for this study was analyzed by the use of descriptive statistics that is, mean mode median and further, with the use of the Statistical Package for Social Sciences, (SPSS) and excel computer packages. The data was then presented in form of tables, charts and graphs