Credit risk management and loan performance in microfinance institutions: case study Burunga microfinance, Kiruhura district

Abstract

The aim of this study was to investigate the relationship between credit risk management on loan performance in micro finance institutions. It was guided by three objectives, to examine the effect of credit appraisal on loan performance in Burunga Microfinance, to assess the effect of credit administration on loan performance in Burunga Microfinance, to establish the effect of credit monitoring and loan performance in Burunga Microfinance. The study employed a case study design and qualitative and quantitative approaches were used. This study was conducted among the employees of Burunga Microfinance in Kiruhura District, a simple random and stratified sampling techniques were used. Data was analyzed using SPSS version 21 and it was presented in form of tables, charts and it was described to give the necessary meaning of the figures there in. The findings revealed that credit appraisal, credit administration and credit monitoring all affect loan performance if micro financial institution. The researcher recommended that, before extending a loan to borrowers through loan appraisal should be carried out especially to new clients, credit administration department should be more vigilant and come up with control measures related to lending risks, financial institutions should ensure that after disbursing loans they should carry out the necessary monitoring so as to find out how the loans given out are being used by borrowers.