Role Of Credit Risk Management In Credit Profitability For Micro Financial Institutions: A Case Study Of Faulu Kenya In Nairobi Business District (NBD)
By Stephen Kyalo Wambua
Existing literature and practice has indicated to a great extent that exposure to credit risk continues to be a significant source of problems for lending businesses at both the national and international levels. This problem is even more important with reference to micro finance institutions since they are involved with lending to the low-income earners in the society. This group is considered as riskier in terms of the exposure to credit risk. Credit risk management is therefore a critical element in the success of these financial institutions which face a myriad of challenges in enhancing easy and affordable access to financial resources by the less fortunate of the societies. In this case, effective credit risk management would therefore improve the credit profitability of the micro financial institutions. Consequently, the primary objective of this research is to determine the role of credit risk management in the credit profitability for the micro finance institutions. The research will endeavor to understand how risk management is practiced, the major factors affecting its practical application and the contribution of the credit risk management practice in the profitability of the financial institutions. A case study research design is applied in order to achieve this objective, where Faulu Kenya micro financial institution is used as the case study. The research makes use of both primary and secondary data in achieving the research objective. In order to collect the relevant data, this research makes use of mixed data collection techniques. Specifically, the research will use interviews and questionnaires to collect the required data. In analyzing the data, the procedures provided by Miles & Huberman (1994) will be followed and computation of the various measures of dispersion including the mean, median and mode will also be done. This analysis will be presented in charts, graphs and tables for ease of interpretation.