Effect of Credit Risk Management on Loan Performance among Microfinance Institutions. A Case of Réseau Interdiocésain De Microfinance (RIM Ltd) Kibuye Branch.

Abstract

This research assessed the effect of credit risk management on loan performance among microfinance institutions using a case of RIM Ltd Kibuye Branch during past five years (2015- 2019). A sample of 97 respondents was calculated using Yamane formula and randomly selected from a total population of 4334 clients of RIM Ltd including 2777 men and 1557 women, and 9 staffs. Quantitative approach was applied using a questionnaire designed in form of five levels Likert scale and analyzed using IBM SPSS Statistics 23; Qualitative approach was applied through open questions, interview and participant observation. The main findings of the research are: (i) Client appraisal exercise high effect on loan performance of RIM Ltd (overall μ = 4.87; σ =0.325); (ii) Credit risk control exercise high effect on loan performance of RIM Ltd (overall μ = 4.74; σ = 0.381); (iii) Collection policy exercise high effect on loan performance of RIM Ltd (overall μ =5.00; σ =0.000); (iv) Terms of credit exercise high effect on loan performance of RIM Ltd (overall μ =4.65; σ =0.407). The main challenges to effective credit risk management outlined by the research include: Deviation of the projects where the loan is used for a project that it was not requested for; Fluctuation of business climate; Some clients do not want working in solidarity; Clients having loans in SACCOs and RIM Ltd at the same time; and Poor entrepreneurship skills. Overall μ = 5.00; σ =0.000). The research recommended: (i) establishing special penalties for client who deviate the project; (ii) requesting guarantee for agricultural loans; (iii) improving RIM policy imposing solidary groups for accessing the loan; (iv) provision of clearance for loan applicants; (v) developing a culture of customer care whereby planning trainings for members; but also using trainings on entrepreneurship as a marketing strategy.