Effectiveness of Credit Management Systemon Loan Performance: Empirical Evidence from Micro Finance Sector in Kenya

Abstract

Microfinance institutions in Kenya experience highlevels of non-performing loans. This trend threatens viability and sustainability of MFIs and hinders the achievement of their goals. This study was aimed at assessing the effectiveness of credit management systems on loan performance of microfinance institutions. Specifically we sought to establish the effect of credit terms, client appraisal, credit risk control measures and credit collection policies on loan performance.We adopted a descriptive research design. The respondents were the credit officers of the MFIs in Meru town. Collection policy was found to have a higher effect on loan repayment with =12.74, P=0.000 at 5% significance level. Further research is recommended on the effectiveness of credit referencing on loan performance of MFIs. This study is informative in terms of public policy adjustments and firm level competences required for better operation of MFIs and it also contributes to credit management literature.