Abstract:
The purpose of the study was to analyze the credit risk management procedures adopted
on financial performance of microfinance institutions in Kenya. Specifically, the study
sought to determine the extent to which risk identification, risks monitoring procedures,
and risk analysis and assessment procedures are applied in credit risk management by
microfinance institutions in Kenya and their overall effect on the financial performance
of the MFIs. The study adopted the descriptive design. The population of the study was
consisted of credit managers and officers in the 54 Microfinance Institutions in Nairobi
County. The researcher used the questionnaires to collect the data. The questionnaire was
first pretested on credit managers and their assistants whose results were included in the
final results. The data collection was done through a combination of drop and pick and
self-administration methods. Data analysis was based on descriptive and inferential
statistics. Data analysis was done using the Statistical Package for Social Sciences
(SPSS). The results were presented using table and charts. The study found out that the
organization considered risk identification, risks monitoring, risk assessment, risk
analysis as a process in credit risk management. The study established that these
procedures were important as they ensured that the risk management function was
established throughout the whole corporation. The study concludes that the management
of the Microfinance institutions are enhancing their credit risk management by putting in
place measures to curb the risk and this enhances efficiency of services of the institutions.
The study recommends that stiff measures should be put in place to run the credit risk
management in order to enhance positive performance in the Microfinance institutions.
The MFIs should also spearhead in application of procedures which are applied in the
management of Microfinance institutions. Lastly, the study recommends further studies
to be done on the effects of credit risk management procedures on financial performance
of Micro finance institutions in Kenya.
