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Effect of Credit Risk Management on Loan Performance among Microfinance Institutions. A Case of Réseau Interdiocésain De Microfinance (RIM Ltd) Kibuye Branch

Author

Listed:
  • Védaste Habamenshi

    (Assistant Lecturer in the School of Business Management and Economics, University of Kigali.)

  • Dr. Sébastien Gasana

    (Senior Lecturer in the Faculty of Social Sciences, Management and Development Studies, University of Technology and Arts of Byumba – UTAB.)

Abstract

This research assessed the effect of credit risk management on loan performance among microfinance institutions using a case of RIM Ltd Kibuye Branch during past five years (2015- 2019). A sample of 97 respondents was calculated using Yamane formula and randomly selected from a total population of 4334 clients of RIM Ltd including 2777 men and 1557 women, and 9 staffs. Quantitative approach was applied using a questionnaire designed in form of five levels Likert scale and analyzed using IBM SPSS Statistics 23; Qualitative approach was applied through open questions, interview and participant observation. The main findings of the research are: (i) Client appraisal exercise high effect on loan performance of RIM Ltd (overall μ = 4.87; σ =0.325); (ii) Credit risk control exercise high effect on loan performance of RIM Ltd (overall μ = 4.74; σ = 0.381); (iii) Collection policy exercise high effect on loan performance of RIM Ltd (overall μ =5.00; σ =0.000); (iv) Terms of credit exercise high effect on loan performance of RIM Ltd (overall μ =4.65; σ =0.407). The main challenges to effective credit risk management outlined by the research include: Deviation of the projects where the loan is used for a project that it was not requested for; Fluctuation of business climate; Some clients do not want working in solidarity; Clients having loans in SACCOs and RIM Ltd at the same time; and Poor entrepreneurship skills. Overall μ = 5.00; σ =0.000). The research recommended: (i) establishing special penalties for client who deviate the project; (ii) requesting guarantee for agricultural loans; (iii) improving RIM policy imposing solidary groups for accessing the loan; (iv) provision of clearance for loan applicants; (v) developing a culture of customer care whereby planning trainings for members; but also using trainings on entrepreneurship as a marketing strategy.

Suggested Citation

  • Védaste Habamenshi & Dr. Sébastien Gasana, 2023. "Effect of Credit Risk Management on Loan Performance among Microfinance Institutions. A Case of Réseau Interdiocésain De Microfinance (RIM Ltd) Kibuye Branch," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(8), pages 750-769, August.
    • Handle: RePEc:bcp:journl:v:7:y:2023:i:8:p:750-769
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    References listed on IDEAS

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    1. Hennie Van Greuning & Zamir Iqbal, 2008. "Risk Analysis for Islamic Banks," World Bank Publications - Books, The World Bank Group, number 6923, December.
    2. Owango, M. & J. Staal, S. & Kenyanjui, M. & Lukuyu, B. & Njubi, D. & Thorpe, W., 1998. "Dairy co-operatives and policy reform in Kenya: effects of livestock service and milk market liberalisation," Food Policy, Elsevier, vol. 23(2), pages 173-185, April.
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