Effect of Credit Analysis on Financial Performance of Microfinance Institutions in Eldoret Town, Kenya
Author(s)
Kelvin Chenya , Dr. Jared Bitange Bogonko ,
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Abstract
Microfinance institutions industry plays a vital role in the economy by giving loans to poor people with the aim of reducing poverty level hence economic growth. A major threat facing microfinance institutions is the increase of Non-Performing Loans (NPL) that leads to the collapse of microfinance institutions. The purpose of this research is to determine the effect of credit analysis on the financial performance of microfinance institutions in Eldoret town, Kenya. The study was founded on the 5C’s model of client appraisal. The target population of the study was 25 licensed microfinance institutions in Eldoret town according to AMFI (Association of Microfinance Institutions). A sample of 240 respondents was selected based on proportionate sample size categorized into branch managers, senior credit officers and credit officers using stratified sampling and simple random sampling (SRS).The study used primary and secondary data. Questionnaires were used to collect primary data while secondary data was obtained from the annual performance of the respective institutions financial statements. Data was analyzed and presented using descriptive statistics and inferential statistics. Inferential statistics were used to analyze data using correlation, ANOVA while regression analysis was used to test the effect of the independent variable and dependent variable using statistical package for social sciences (SPSS) version 21. The findings revealed positive and significance relationship between the variable set at P<0.05. Credit Analysis (β=0.591; p=0.000<0.05). The findings will be helpful to the microfinance institutions to be able to understand the effect of credit analysis on the financial performance of microfinance institutions, the credit department of microfinance institutions will be able to know the importance of implementing credit policy. It can be concluded that good credit analysis measures be put in place by MFI’s because it influences financial performance hence good health
Keywords
Credit Analysis, Microfinance, Financial Performance
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