The impact of delinquent loans on the performance of microfinance banks in east Africa
Financial institutions all over the world are faced with the challenge of loan delinquency which has necessitated the need for reviewing lending policies to mitigate the delinquency risk as well as putting in place mechanisms that monitor the behavior of borrowers. Irena (2014) notes that loan default was one of the major causes of the financial crises of 2008 and consequently, after the Global Financial Crisis, credit management increased, especially with the purpose of improving the resiliency of the banking sector by requiring more and higher quality capital and more balanced liquidity. Per a study by Alawiye (2013) credit administration and the incidence of bad loans, increase in the loses ofNigerian Banks result from problem loans and the effects of such loans in the form of bad debt provisions can be minimized through effective monitoring and evaluation to avoid the diversion of facilities for unapproved purposes. Similarly, Arko, (2012), in a study on the causes and impact ofnonperforming loans on the operations of microfinance institutions in Ghana, states that some of the loans advanced to beneficiaries underperform and do not earn the projected returns resulting into the reduced quality of the loan portfolio which constitutes a considerable percentage of the assets of the MFIs. In regards to these studies, the importance of credit risk management cannot be taken for granted and this explains why the practice has increased for both borrowers and lenders.