Effect of Credit Risks Management Techniques on Loan Performance: A Survey of Selected Sacco's in Kericho County, Kenya

Abstract

The study was set out to assess the effects of credit risk management techniques on loan performance of a SACCO. It assessed whether the techniques are effective in reducing bad loan performance in a dynamic lending business environment. Despite the developments of the risks management programmes, non-performing loans is still a major challenge in SACCOS and hence the need to study the influence of credit management techniques on loan performance. The researcher was guided by the following specific objectives: to establish the effect of collateral securitization on loan performance; to determine the effect of monitoring of borrowers on loan performance of a SACCOs, and; to examine the effect of credit documents on loan performance in SACCOs. The research hypotheses was stated as follows; there is no relationship between collateral securitization and loan performance of a SACCOs ; there is no relationship between monitoring of borrowers and loan performance of a SACCOs; there is no relationship between credit documents and loan performance of a SACCOs.  The research was conducted in Kericho County by considering all the Board and Management of SACCO's. The study used survey research design.  The tools for data collection were mainly questionnaires and a sample size of 95 respondents. Questionnaires were used to collect data and analyzed using descriptive and inferential statistical analysis. Census survey of all the 95 Management and Board in five selected SACCOS in Kericho County was used, out of which 92 respondents participated in this study. Data collected involved a self-administered questionnaire. Quantitative data collected was analyzed using descriptive and inferential statistics. The data was analyzed using SPSS (Statistical Package for Social Sciences) version 20. Multivariate regression model was also used to analyze the results as shown by a value of R²=0.608 (p<0.01). The study established a statistically significant relationship between collateral securitization and the loan performance of SACCOs. The study revealed that monitoring of borrowers has less significance on loan performance. Finally the study found that credit documents affected the loan performance of the SACCO to a very great extent. The study recommends that the management of SACCOs should consider putting in place collateral securitization policy since it affects their loan performance. Monitoring of borrowers mechanism should be instituted in the SACCO since it will minimize default by borrowers. Finally, the study recommended that there should be credit documentation to ensure that there are proper credit follow ups and procedures on lending to borrowers. The study also recommended that the same study be carried out in other financial sectors for example banks, microfinance institutions and public sectors to find out if the same results will be obtained.