Credit Risk Management Techniques for Reduction of Non-Performing Loans among Microfinance Institutions: A Case of Selected Microfinance Institutions in Dar Es Salaam i
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Mzumbe University
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A Dissertation Submitted in Partial Fulfillment of the Requirements for Award
of the Degree of Master of Business Administration (MBA) in Corporate
Management of Mzumbe University.
This study assessed credit risk management techniques for reduction of the Nonperforming loans among MFIs in Tanzania. The case study design was adopted by involving 79 MFIs and was guided by three objectives related with reasons behind existence of Non-performing loans, credit risk detection techniques implemented for reduction of Non-performing loans and credit risk prevention techniques implemented for reduction of Non-performing loans. Purposeful sampling technique was used to select a total of 150 respondents among the credit/loan officers of the MFIs and primary data were collected by administering the survey questionnaire. The collected data were analyzed quantitatively using descriptive statistics with the aid of SPSS program V.20 and the results were presented using tables, percentages, measures of central tendencies (mean values and standard deviation) and Bar charts. The findings revealed that existence of Non-performing loans was due to several reasons including lack of attention on the credit information of the borrowers before credit/loan approval and poor keeping of credit records among MFIs. Also, the study found that MFIs implemented several techniques for detection of the Nonperforming loans. One of the techniques was investigating enforcement of loans repayment by the borrowers. Further, the main techniques for prevention of Nonperforming loans included careful screening of the borrowers and close supervision of the borrowers. Despite the implementation of the techniques above, the problem of Non-performing loans continued to affect majority of MFIs. Based on the current study MFIs can be able to detect credit risks which have been leading into Non-performing loans by analyzing loans repayment trend periodically and oversee compliance with credit terms and conditions among the borrowers. Again, MFIs must ensure close supervision of the credit/loans officers, effective implementation of credit/loan policies and procedures, instilling sense of responsibility among credit/loans officers and borrowers.
This study assessed credit risk management techniques for reduction of the Nonperforming loans among MFIs in Tanzania. The case study design was adopted by involving 79 MFIs and was guided by three objectives related with reasons behind existence of Non-performing loans, credit risk detection techniques implemented for reduction of Non-performing loans and credit risk prevention techniques implemented for reduction of Non-performing loans. Purposeful sampling technique was used to select a total of 150 respondents among the credit/loan officers of the MFIs and primary data were collected by administering the survey questionnaire. The collected data were analyzed quantitatively using descriptive statistics with the aid of SPSS program V.20 and the results were presented using tables, percentages, measures of central tendencies (mean values and standard deviation) and Bar charts. The findings revealed that existence of Non-performing loans was due to several reasons including lack of attention on the credit information of the borrowers before credit/loan approval and poor keeping of credit records among MFIs. Also, the study found that MFIs implemented several techniques for detection of the Nonperforming loans. One of the techniques was investigating enforcement of loans repayment by the borrowers. Further, the main techniques for prevention of Nonperforming loans included careful screening of the borrowers and close supervision of the borrowers. Despite the implementation of the techniques above, the problem of Non-performing loans continued to affect majority of MFIs. Based on the current study MFIs can be able to detect credit risks which have been leading into Non-performing loans by analyzing loans repayment trend periodically and oversee compliance with credit terms and conditions among the borrowers. Again, MFIs must ensure close supervision of the credit/loans officers, effective implementation of credit/loan policies and procedures, instilling sense of responsibility among credit/loans officers and borrowers.
Keywords
Credit risk managemen, Nonperforming loans among MFIs in Tanzania, Borrowers