The research project sought to examine the effect of listing with Credit Reference Bureau service on non-performing loans of deposit taking microfinance institutions in Kenya. The specific objectives were to assess how loan recoveries as a result of listing with credit reference bureau affects non-performing loans by deposit taking microfinance institutions in Kenya and to assess how write offs as a result of listing with credit reference bureau affect non-performing loans by deposit taking microfinance in Kenya. Furthermore to examine how loan quality as a result of listing with credit reference bureau affect non-performing loan in deposit taking microfinance in Kenya and what effect does listing with credit reference bureau has on non-performing loans levels in Deposit Taking Microfinance in Kenya. This research study adopted a descriptive survey approach on effect of listing with Credit Reference Bureau Service on non-performing loans of deposit taking microfinance institutions in Kenya.
Further, this study targeted all registered deposit taking microfinance institutions by the Central Bank of Kenya (CBK). Target population was 12 registered Deposit taking microfinance institutions that have listed with Credit Reference Bureaus in Kenya. This study used primary data that was collected by use of a questionnaire. The data was analyzed by use of Descriptive and inferential statistics to measure interrelationships between the variables. Tables were used to display the information to improve presentation of the analyzed results for ease of interpretation. Regression analysis was used to test the relationship between dependent and independent variable.
In light of the research findings, the regression model could only explain 52% in variance of non-performing loans. The study results revealed that there was a statistically significant relationship between loan recoveries and non-performance of loans (p=0.000); there was a statistically significant relationship between write offs and non-performance of loans (p=0.000) and that there was a statistically significant relationship between quality loan portfolio and non-performance of loans (p=0.000). Hence, credit information sharing and level of nonperforming loans are indeed related meaning there is a direct relationship between the number of credit checks done by the CRBs and the level of NPLs.
Table of Contents
1. Introduction
1.1 Background of the Study
1.1.1 Non-Performing Loan (N.P.L)
1.1.2 Credit Reference Bureau
1.2 Statement of the Problem
1.3 Objective of the Study
1.3.1 General Objective
1.3.2 Specific Objectives:
1.4 Research Hypothesis
1.5 Justification of the Study
1.6 Significance of the study
1.7 Scope of the Study
1.8 Limitations of the Study
1.8.1 Delimitations of the study
2. Literature Review
2.1 Introduction
2.2 Theoretical Framework
2.2.1 Information Sharing Theory
2.2.2 Adverse Selection Theory
2.2.3 Credit Risk Theory
2.3 Empirical Review
2.3.1 Effect of Increase or decrease in non-performing loans
2.4 Write off
2.5 Loan Recoveries.
2.6 Quality of Loan Portfolio
2.7 Conceptual framework
2.8 Operationalization of variables
3. Research Methodology
3.1 Introduction
3.2 Research Design
3.3 Population of Study
3.4 Sampling and Sample Frame.
3.5 Data Collection Method and Instrument
3.6 Validity and Reliability
3.7 Data Analysis and Presentation
4. Data Analysis, Presentation and Interpretation
4.1 Introduction
4.2 Response rate
4.2.1 Gender and Category of the respondents
4.2.2 Age group and category of the respondents
4.2.3 Level of Education and Category of the respondents
4.2.4 Tenure and Category of the respondents
4.3. Descriptive Statistics
4.3.1. Loan Recoveries
4.3.2 Write-Offs Portfolios
4.3.3 Quality of Loan Portfolio
4.4 Correlation Analysis
4.4.1 Loan recoveries and Non-Performing Loans
4.4.2 Write-Offs and Non-Performing Loans
4.4.3 Loan Quality and Non-Performing Loans
4.5 Regression Analysis
4.5 Hypotheses Testing
4.5.1 Research Findings and Summaries
5. Summary of Findings, Conclusions and Recommendations
5.1 Introduction
5.2 Research Findings and Summaries
5.2.1 Loan recoveries and Non-performing loans
5.2.2 Write-offs and Non-Performing Loans
5.2.3 Loan Quality and Non-performing Loans
5.3 Conclusions
5.4 Recommendations
5.4.1 Recommendations for Loan Recoveries
5.4.2 Recommendations for Write-Offs
5.4.3 Recommendations for Loan Quality
5.5 Areas for further study
Research Goals and Key Topics
The primary goal of this research is to examine the impact of Credit Reference Bureau (CRB) services on the levels of non-performing loans (NPLs) within deposit-taking microfinance institutions in Kenya. The study seeks to determine if credit information sharing facilitates better risk management, recovery of defaulted debts, and improved overall loan portfolio quality.
- Effect of CRB listing on loan recovery rates.
- Influence of write-off policies on non-performing loans.
- Relationship between loan portfolio quality and borrower default.
- Analysis of information asymmetry reduction via CRB services.
- Regulatory compliance and credit risk management practices.
Excerpt from the Book
1.1.1 Non-Performing Loan (N.P.L)
A loan refers to something lent for the borrower’s temporary use on a condition that is equivalent to what is returned (Morsman, 1993). Successful lending is about getting the balance right between financial return the lender expects and the risk that the borrower may not be repaid as anticipated. According to the International Monetary Fund (IMF, 2009), a non- performing loan is any loan in which interest and principal payments are more than 90 days overdue or more than 90 days’ worth of interest has been refinanced. On the other hand, the Basel Committee (2001) puts non-performing loans as loans left unpaid for a period of ninety days. Advancing credit facilitates is a key role of the micro finance industry in addition to, loans are the dominant asset and represent 50-75 percent of the total amount at most banks they are the major contributor of operating income and represent the banks greater risk exposure (Mac Donald and Koch,2006). Failure to manage loans, which make up the largest share of banks assets, would likely lead to high levels of non-performing credits. Lending is the principle activity of commercial banks and the loan portfolio is the largest asset and the predominant source of revenue for the lending institutions (Morsman, 1993).
According to the Banking Act and Prudential Guidelines (2013), a loan is considered as non-performing “when the principal or interest due is in arrears for 90 days or more”. With respect to the Microfinance Act 2006 and the Microfinance Regulations 2008, a loan is considered as non-performing “if the principal or interest is due and unpaid for more than 30 days or when a credit facility is classified as substandard, doubtful or loss”. This difference in classification needs to be addressed to ensure uniformity in reporting and provisioning.
Summary of Chapters
1. Introduction: Provides background on the Kenyan microfinance sector, defines non-performing loans and the role of Credit Reference Bureaus, and outlines the problem statement and research objectives.
2. Literature Review: Discusses theoretical frameworks like Information Sharing Theory and Adverse Selection Theory, alongside an empirical review of existing studies on credit risk and loan portfolio management.
3. Research Methodology: Details the descriptive survey research design, the target population of 12 deposit-taking microfinance institutions, sampling techniques, and data collection methods.
4. Data Analysis, Presentation and Interpretation: Presents the findings derived from the questionnaires and regression analysis, evaluating the relationship between loan recoveries, write-offs, loan quality, and non-performing loans.
5. Summary of Findings, Conclusions and Recommendations: Summarizes the key research outcomes, offers conclusions on the impact of CRB usage, and provides recommendations for policy improvement and future research.
Keywords
Credit Reference Bureau, Deposit Taking Micro-Finance, Non-Performing Loans, Loan Recoveries, Writing off, Information Sharing, Adverse Selection, Credit Risk, Portfolio Quality, Financial Performance, Risk Management, Asymmetric Information, Lending Practices, Microfinance Institutions, Kenya.
Frequently Asked Questions
What is the core focus of this research project?
The research fundamentally focuses on investigating the effect of listing with a Credit Reference Bureau (CRB) on the levels of non-performing loans specifically within deposit-taking microfinance institutions in Kenya.
What are the central themes explored in this work?
The central themes include the role of credit information sharing in reducing information asymmetry, the impact of loan recovery processes, the significance of loan write-off strategies, and the maintenance of loan portfolio quality.
What is the primary objective of the study?
The primary objective is to assess the relationship between listing with a CRB and the performance of loan portfolios, specifically looking at how this affects recovery rates, write-offs, and general loan quality.
Which research methodology was employed?
The study adopted a descriptive survey design. It utilized both primary data, collected via structured questionnaires distributed to credit managers and loan officers, and secondary data from annual financial reports.
What topics are covered in the main body?
The main body covers the theoretical framework of credit risk, empirical evidence from previous studies, detailed descriptive statistics on loan performance, correlation analysis between variables, and multiple linear regression models to predict NPL variations.
Which keywords best characterize this study?
Key terms include Credit Reference Bureau, Non-Performing Loans, Deposit Taking Micro-Finance, Loan Recoveries, Write-offs, and Credit Risk Management.
How does loan quality influence non-performing loans according to the findings?
The findings indicate a statistically significant and positive relationship, suggesting that higher loan quality—influenced by better assessment and borrower behavior—leads to a decrease in non-performing loans.
What role does the Credit Reference Bureau play in mitigating risks for MFIs?
CRBs help reduce information asymmetry by providing reliable data on a borrower's credit history, allowing institutions to distinguish between good and bad borrowers and thereby lower default risks.
What specific impact do loan write-offs have on MFI performance?
The study found a significant relationship between write-offs and non-performing loans, emphasizing that effective policies for identifying and handling uncollectible debts are crucial for preserving liquidity and lending potential.
What recommendations does the author provide for future improvement?
The author recommends that institutions invest more in relationship lending, improve the verification of credit scores by regulators, and educate borrowers on the importance of maintaining a positive credit history.
- Citation du texte
- Hilary Omare (Auteur), 2016, Effect of Credit Reference Bureau Services on Non-Performing Loan Portfolios in Kenya, Munich, GRIN Verlag, https://www.grin.com/document/500466
