Credit Risk Portfolio Management in Microfinance Banks: Conceptual and Practical Insights

Abstract

Microfinance Banks have a critical role of providing different financial products and services to the people most especially the low income earners who lack collateral to borrow from formal financial institutions like the commercial banks. This category of financial institutions serves some of the world's most needy. A significant challenge facing these banks is the battle to control its portfolio at risk to remain within the international bench mark. In this paper, we reviewed practical approaches to controlling loan default and other related risks common to Microfinance Banks. The paper also reviewed related literatures on Microfinance credit risk portfolio assessment and suggested the place of Operations Research experts in tackling Microfinance Banks challenges. The major finding was that credit risk continues to be a threat to Microfinance Banks sustainability. Our conclusion is that Microfinance Banks' credit risk will reduce to the barest minimum if the recommended practical approaches to controlling loan defaults are adhered to.