Abstract
Purpose: In the recent past Agricultural Finance Corporation has experienced huge non-performing 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 loanUnique 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.
Highlights
Financial institutions generally serve as financial intermediaries
The regression was run with the perception of employees on contributors of non-performing loan
5.0 CONCLUSIONS AND RECOMMENDATION 5.1 Conclusions From the analysis of the findings, it can be generally concluded that first initial loan appraisal has greater impact on Non-performing loans (NPLs)
Summary
Financial institutions generally serve as financial intermediaries It is their function to mobilize funds savers by issuing to them own securities. This form of asset transformation is required to ensure that funds are moved from surplus economic units to deficits economic units within the economy. Non –performing loans (NPLs) generally refer to loans which for a relatively long period of time do not generate income; that is the principal or interest on these loans has been unpaid for at least 90 days (Caprio & Klingebiel, 1999). Non-performing loans (NPLs) could occur when the amortization schedules are not realized as at when due resulting in over-bloated loan interest due for payment
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