Debtors Management Practices and Financial Performance of Registered Microfinance Institutions in Nandi County, Kenya
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Date
2024-06
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Kenyatta University
Abstract
Microfinance institutions in Kenya play a significant role since Kenya is one of the most
densely populated countries, however in terms of financial performance of these institutions,
it’s still lagging behind. However, debtor’s management challenges continue to hinder
achievement of objectives and have led to poor performance in the recent past. Sound debt
management system is a prerequisite for a financial institution’s stability and continued
profitability, while deteriorating credit quality is the most frequent cause of poor financial
performance and condition. The probability of bad debts increases as debt standards are
relaxed. Microfinance institutions must therefore ensure that the management of receivables is
efficient and effective. The study looked into effect of debt management practices and financial
performance of microfinance institutions. The study was guided by the following specific
objectives: To determine the effect of debt collection policy, to examine the effect of client
appraisal to establish the effect of debt control and to determine the effect of terms of credit
on financial performance of selected microfinance institutions in Nandi County, Kenya. The
Five C's theory, Modern Portfolio Theory, and Transaction Costs Theory served as the study's
foundations. A descriptive1research technique was applied in1this study. The study's target
group consisted of 101 personnel from the finance and credit departments of 11 microfinance
banks licensed with the1Central Bank1of Kenya (CBK) in Nandi County. Due to the
manageable size of the study's population, the1respondents were chosen by purposeful
sampling, employing a census approach. Questionnaires were used to collect data from the
respondents. The1collected data1was analyzed1using SPSS version 25. From the analysis data
indicate a direct relationship between the debt collection policy and the financial performance
of microfinance institutions this was supported by a correlation coefficient of 0.357 and a p value of 0.010. The results indicate a substantial and positive link (correlation coefficient =
0.223, p-value = 0.015) between client appraisals and financial performance of microfinance
firms in Nandi County. The result indicated1a strong and1statistically significant
relationship1between debt monitoring and management on performance1of
microfinance1institutions by a correlation1coefficient of 0.265 and a p-value of 0.030. The
study findings indicate a strong and statistically significant1relationship between terms of loan
and the1financial performance1of microfinance institutions by a correlation coefficient of 0.221
and a p-value of 0.0320. The study achieved an R-Squared value of 0.789, indicating that credit
terms, debt control, customer evaluation, and debt collection policies account for 78.0% of the
variation in the financial1performance of microfinance1institutions in Nandi County. The1study
recommends that1microfinance1institutions should perform a comprehensive examination of
transaction costs related to micro-financial activities. Contemplate the use of promotional
efforts or incentives in order to appeal to a wider range of customers. The researcher
recommends to policy maker to develop and enforce strong debt collection regulations for
microfinance institutions in Nandi County. Offer clear instructions and assistance to ensure
that these policies are successful in improving financial performance. The study recommends
that a further study should be conducted on debtor's management approaches, which might
have varying effects on financial success. Key determinants impacting the financial
performance of the MFIS, such as credit evaluation, might also be investigated. Additionally,
a comprehensive examination of debtor's management in Sacco's is another crucial aspect that
necessitates careful scrutiny.
Description
A Research project Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of the Requirements for the Award of the degree of Master of Business Administration (Finance option) of Kenyatta1university. May, 2024
Supervisor
Job Omagwa