Credit Risk and Financial Performance: Evidence from Microfinance Banks in Nigeria (original) (raw)
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Credit Risk Management and Financial Performance of Microfinance Banks In Nigeria (2011 - 2020)
International Journal of Research Publications
Microfinance banks holds the key to economic growth in developing economics and their financial health is sacrosanct to achieving this role. They provide small scale finances to small business enterprises. Previous publications which investigated effect of credit risk management on financial performance of Microfinance banks relied essentially on primary data for its analysis.This study was initiated to examine the effect of credit risk management on the financial performance of Microfinance banks in Nigeria using secondary data extracted from the published financial reports of six purposively selected Microfinance banks, covering the period of 2010-2019. The study employs descriptive statistics, Panel least squares regressions and correlation analysis to estimate the effect of the credit risk variables proxied by Non-performing loan ratio (NPLR), Liquidity ratio (LIQR) and Capital adequacy ratio (CAR) on the financial performance measured by Return on assets (ROA). Arising from the results of the Panel regression, the study therefore concluded that credit risk management proxied by NPLR and CAR have significant effect on the financial performance of the selected Microfinance banks in Nigeria proxied by ROA. Hence, Central bank of Nigeria should regularly monitor Microfinance bank's compliance to relevant provisions of the law as it concerns debt accumulation.
Influence of Credit Risk on Financial Performance of Deposit Taking Microfinance Banks in Kenya
International Journal of Academic Research in Accounting, Finance and Management Sciences, 2021
Deposit taking microfinance banks plays a major role in boosting the economy of a country, improving the standard of living of people and alleviating poverty more especially in developing countries. The study sought to determine the influence of credit risk on financial performance of deposit taking microfinance banks in Kenya. The independent variable in this study was credit risk proxied by Capital to risk weighted assets and non-Performing loan ratio while dependent variable was financial performance measured by return on equity. The study adopted Panel data regression using ordinary Least Squares (OLS) methods/ design. The target population of the study was 13 deposit taking microfinance banks regularized and licensed by Central Bank of Kenya (CBK) by 2017. However due to insufficient data (information) 4 Deposit taking microfinance banks were removed. The study analyzed 9 Banks s for the period of 7 years (2011 to 2017). Secondary data was used in order to capture the relationship between credit risk and performance of deposit taking microfinance banks in Kenya. The data was analyzed using Descriptive statistics, correlation analysis and panel regression analysis. Statistical software's Eview version 8 was used to estimate the relationship between the study variables. The autocorrelation among the regression model was tested using Durbin-Watson factors. The augmented Dickey Fuller (ADF) unit root test was used with the null hypothesis for acceptance (non-stationarity) or rejection (stationality). Regression result indicated that credit risk had a positive and statistically significant effect on financial performance of deposit taking microfinance banks in Kenya. The study recommends that further studies should be conducted to determine the effect of credit on financial performance of deposit taking microfinance banks using more credit variables and longer time of period, in addition there is need to analyze the influence of credit risk on other financial institutions like SACCOs and commercial banks. Furthermore, researches on other risks which include, market risk, interest rate risk, liquidity risk, strategic, Compliance and legal needs to be investigated since they are not included in the study.
Credit Risk Evaluation and Performance of Microfinance Banks in Ogun State
2020
Microfinance banks in most world economies are dominant as financial institutions providing loans to business owners compared to any other financial institution. However, credit provision requires due attention as credit risk management is one of the critical aspects and challenges faced by microfinance banks. This study examines the role of credit risk management on loan performance in microfinance banks in Ota, Ogun State, Nigeria. The study adopted survey research design and data were collected through a well-structured questionnaire. Purposive sampling technique was adopted, and a sample size of two hundred respondents was drawn from the selected banks in Ota. Data were analysed through the aid of statistical package for social sciences (SPSS), and linear regression was used as a statistical tool for analysis (R=.455; R 2 =.207 and R Adj.=.202). From the results above, the study revealed that there is a significant relationship between credit risk evaluation and loan performance...
Determinant Factors in Credit Risk Management of Microfinance Institutions in Ethiopia
Journal of Policy and Development Studies, 2016
The purpose of this paper is to empirically identify the factors that affect credit risk of microfinance institutions in Ethiopia where interventions through the delivery of microfinance services are considered as one of the policy instruments of the government to eradicate poverty. This study has identified the determinants of credit risk of microfinance institutions using Morgan Stanley's rating methodology of microfinance institutions and GLS random effect regression. Given Morgan Stanley's rating methodology, Ethiopian microfinance institutions had an excellent performance in terms of credit risk management, profitability, operating efficiency, productivity, liquidity, and leverage. However, the size of their gross loan portfolio was very poor during the period under study. In addition, the regression result has revealed that size of portfolio, return on asset, and operating efficiency have negative and significant impact on credit risk. However, productivity, liquidity, leverage, and age have no effect on credit risk. Thus, size of portfolio, return on asset, and operating efficiency are the important variables that account for variation in credit risk among microfinance institutions in Ethiopia.
Credit risk in microfinance industry: Evidence from sub-Saharan Africa
Review of Development Finance, 2018
Paradoxically, a plethora of empirical evidence in the traditional banking industry claims that smaller loans are associated with higher risk and the exact opposite is true for large loans. In this study we investigate these claims by estimating the relationship between loan sizes and credit risk in the microfinance industry. The sample used for our analysis incorporates over 2000 annual observations, and 632 microfinance institutions drawn from 37 countries of the sub-Saharan African (SSA) region over the period 1995 to 2013. Using the GMM technique, our estimates indicate that credit risk is positively related to loan sizes among microfinance institutions operating in SSA. Our findings have significant implications for the portfolio managers of microfinance institutions operating in SSA, particularly in light of the current wave of mobile money services in many countries.
Open Journal of Business and Management , 2023
This study reviewed the effect of credit risk management on the financial performance of microfinance institutions (MFIs) in Nigeria. Utilizing a qualitative review methodology, the review found that proactive risk assessment, thorough credit appraisal, proper loan monitoring, and prompt loan recovery procedures are essential components of efficient credit risk management, which has a substantial impact on MFI performance. Credit risk management is also improved by well-defined regulations, qualified personnel, and suitable technology infrastructure. The study cites difficulties MFIs confront, including restricted access to credit information, insufficient regulatory frameworks, and operational limitations. By addressing these issues, financial performance and sustainability can be increased. Enhancing credit information sharing systems, encouraging stakeholder cooperation, and offering capacity-building initiatives are some recommendations. This study offers insightful information that can help practitioners, regulators, and policymakers create a climate that supports efficient credit risk management while boosting financial performance and promoting Nigeria's long-term growth.
Firm Characteristics and Credit Performance of Microfinance Banks in Kenya
Microfinance banks play a big role in providing credit to the unbanked population of the world. This has given rising to alleviation of so many people out of the poverty zone. In Kenya, the sector has been considered as the most vibrant in East Africa with diverse range of services rendered to members of the public. However, the performance of credit within the microfinance sector has raised concern for stakeholders in the industry. Various studies have looked at the nexus among firm characteristics and performance of microfinance banks, from different countries and different outcomes were attained. However, the local studies in Kenya have given different results given the relationship between firm characteristics and microfinance banks performance. The purpose of this study was to determine the effects of firm characteristics and on credit performance of microfinance banks in Kenya. From past studies, little focus has been laid in relation between firm characteristics and credit performance in Kenya. This study is based on the following specific objectives: to investigate the effect of management efficiency, capital adequacy, liquidity, banks size on credit performance of Microfinance banks in Kenya. Liquidity Shiftablilty Theory, Efficiency Structure Theory and Capital Buffer Theory formed the investigation’s hypothetical underpinning. Causal investigation design was applied on thirteen microfinance banks for the period spanning from 2019 to 2021 arrived at via census. The information utilized was sourced using secondary data collection guide. Analysis of the information arrived was done via panel and descriptive methods. Various diagnostic tests for the validation of classical regression model were applied to include Normality Test and Multicollinearity Test. Ethical requirements for the project writing was considered. Averages and standard deviations were employed for qualitative statistics whilst fixed effect study plus Pearson's product moment correlation analysis were used for hypothesis testing. Insightful Assets Ratio and Acceptance Quality both have had statistically significant positive effects on credit performance, based on the findings of a practicable generalized linear regression model. According to correlation research, capital sufficiency and managerial effectiveness had a weakly significant correlation to calpers, while flexibility had a large positive connection and return on assets had a strong negative link. According to the study's findings, Microfinance Financial Institutions with high loan levels compared to their capital also have high credit performance ratios. Some with low credit performance ratios had excess cash
Determinants of Microfinance Bank loan default in Niger state, Nigeria
Benue Journal of Social Sciences Vol. 5(1), Pp. 1-11. , 2017
Microfinance Bank is important for poverty reduction and employment creation. However, one major threat to Microfinance banks' sustainability is Loan Default. The objective of the study is to identify the socioeconomic factors that determine the probability of loan default in Niger state. Data were collected using the multistage random sampling technique from 300 borrowers. Data obtained from survey were analysed using a Logit Model. The results show that borrower's\sex, age, family size, income, interest rate and amortization period significantly determine borrower's probability of loan default in the study area, whereas borrowers' educational qualification and experience was found not statistically significant in the determination of Microfinance Banks loan default. The study recommends Banks should have perfect knowledge about borrower's income status and family size, Bank should consider income of the borrowers, when determining the grace period and amortization period, administrative charges should be lower bearing in mind the rate of interest charge on loan and Quick follow-up visits after a missed payment would prevent high default rate.
CREDIT RISK MANAGEMENT ON FINANCIAL PERFORMANCE OF MICRO-FINANCE BANKS IN KENYA
IJSSIT, 2023
The objective of the study was to assess the effect of credit risk management practices on financial performance of micro-finance banks in Kenya. A total of 56 employees comprising of one operation manager, branch manager, internal auditor, and risk management officer from each of the 14 registered micro finance banks were recruited. The data were collected using semi-structured questionnaires. The results showed that the respondents agreed that secured lending is important in maintaining the financial stability of our microfinace bank and that employer's undertaking has a positive impact on the financial performance (M=3.929, SD= 0.164); and that selective lending is effective in improving financial performance. The findings also showed that current credit management practices are effective at improving financial performances. Consequently, it is advised that the bank management adjust their credit-related practices to evolving circumstances, crafting credit policies and strategies that not only curtail the bank's exposure to credit risk but also institute a robust credit risk-management approach by conducting thorough credit evaluations before extending loans to clients.