Causes of nonperforming loans in microfinance banks in Nairobi, Kenya
Date
2020
Authors
Gichuki, F. W.
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Journal ISSN
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Publisher
Strathmore University
Abstract
This study seeks to determine the causes of nonperforming loans in microfinance banks in Nairobi, Kenya. While microfinance may be revolutionary in changing non-bankable peoples lives for the better, it is essential to study the causes of non-performing loans due to the huge costs and losses that may result from them. Hence the study assessed borrower factors, loan factors and business factors to find out the extent to which they affect loan non-performance. The study employed descriptive research design. There exist 13 microfinance banks in Kenya, and from the 13, the researcher was able to get data from 7. A total of 31 respondents gave feedback through questionnaires. The data was then analysed using Statistical Package for Social Sciences (SPSS, Version 25). Tables and figures were used in data presentation. Mean, standard deviation and percentages were used in data analysis. According to the findings, borrower characteristics of age and gender had high influence on loan non-perf01mance while education level had no significant influence. All loan and business characteristics had significant influence on loan performance. Following the study, recommendations were made. Microfinance Banks should have rigorous screening processes to ensure that only credit worthy individuals and businesses gain access to loans. First, credit officers and recovery managers should mandatorily follow up with borrowers on loan utilization and repayment. This will enable them to closely monitor loan performance, such that non-performing loans can be easily identified, and corrective measures taken. Second, training borrowers on loan clauses, how to calculate repayment instalments monitor, personal finance management and saving will reduce default rates. Lastly, banks can introduce a merit system to award/motivate those that pay on time. Rewards can be in the form of a rebate or discount. Further research should be carried out on systemic factors influencing loan performance.
Description
Full - text undergraduate research project
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Citation
Gichuki, F. W. (2020). Causes of nonperforming loans in microfinance banks in Nairobi, Kenya [Strathmore University]. http://hdl.handle.net/11071/16055