Effect of Initial Loan Appraisal on the Non-Performing Loans in agricultural Finance Institutions
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Date
2017
Authors
Njuguna, Reuben
Barasa, Kizito Wekesa
Journal Title
Journal ISSN
Volume Title
Publisher
Cari Journals
Abstract
Purpose: In the recent past Agricultural Finance Corporation has experienced huge nonperforming
loan portfolio. This has been to the tune of 5 billion comprising of 2500 clients. The
purpose of this study was therefore to establish the contributors of non-performing loan to
agricultural finance institution. The study sought to determine the effect of initial loan appraisal,
the extent to which loanees’ level of financial management skill affect NPL, and effect of credit
policies and loan recovery strategies on nonperformance of loans at AFC.
Methodology: The study adopted a case study research design. Data was collected by using
questionnaires administered by the researcher. The research targeted a single unit AFC. A total
of 4 heads of department from credit, debt collection and recovery, Finance and Audit were
targeted to respond to the questionnaire. The selection of the 4 heads was based on purposive
sampling method. In addition 36 credit officers and 16 branch managers were selected using
stratified and random sampling method as respondent to the study. This gave a total of 54
respondents. The data was analyzed using descriptive statistics utilizing SPSS.
Results: The research findings showed that there was a significant positive relationship between
loan appraisal and ratio of non-performing loan to total advances. This implies that as the process
of loan appraisal is improved and done properly, the loan performance also improves similarly.
Therefore, if initial loan appraisal is not done properly it will lead to more non-performing loan
Unique contribution to theory, practice and policy: The study recommends that AFC top
management should create a working relationship with other lending institutions to ensure that
farmers do not abuse the well-kept farming financial records to acquire more loans from the
other financial institutions whose recovery could create huge NPL on the part of AFC loans
advanced to them.
Description
Article.
Keywords
Non-performing loan, economic inflation, world recession, initial loan appraisal, agricultural finance institutions
Citation
Barasa, K. W., & Njuguna, R. (2017). Effect of initial loan appraisal on the non-performing loans in agricultural finance institutions. Journal of Business and Strategic Management, 2(4), 1-14.