Implication of Credit Risk Management Practices on Financial Sustainability: A Case Study of Digital Lending Firms in Kenya

Abstract

Technological revolution such emergence of mobile phone has triggered unprecedented changes in various. Among the sectors that whose operational landscape has greatly altered through such invention is the financial sector. The financial sector for instance has seen introduction of digital lending undertaken by various companies, an activity that was initially a preserve of commercial Banks. However, the lending activity of most digital lending firms operate in unregulated environment with the lending where each firm had its own rules of operation, such as risk assessment. The purpose of this study was to assess the implication of risk assessment on financial sustainability of selected digital lending firms in Kenya. The study adopted a descriptive survey research design. Data was captured though the use of questionnaires and document analysis. The study established that there was no significant difference between risk management practices and financial sustainability of digital lending firms and the organizations employs several financial risk management measures to mitigate against financial. However, most of the organizations charged relatively higher levels of interest and also lacked proper mechanism of evaluating creditworthiness of their customers leading to high default rates. The study recommends for establishment of proper mechanism of evaluating customers' loan ability as well as reducing rates of interest charged as a way of containing default rates among borrowers.