CREDIT RISK MANAGEMENT AND THE FINANCIAL PERFORMANCE OF PRIDE MICRO FINANCE NORTHERN REGION
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2024-10-25
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Abstract
The study was about the effect of credit risk management on the financial performance of Pride Micro Finance Northern Region. The objectives of the study were to; find out the effect of risk avoidance, risk transference, risk mitigation and risk acceptance on the financial performance of Pride Microfinance Northern region. The researcher used a descriptive design that had qualitative and quantitative approaches. The target population for this study was 120 and it comprised of; Branch Managers, Credit Supervisors, Credit Officers and Loan clients from the five branches of Pride Microfinance-Northern Region. Out of a study population of 120 the researcher drew a sample of 92 respondents.
The findings of the study were that; Pride Micro Finance has strong credit management policies, has efficient risk identifiers, encourages collective decision making while giving out loans, effective loan screening, asks for a higher value collateral than the loan amount; but rarely adjusts loans according to level of credit risk. Pride Micro Finance has been applying risk transfer methods; third party takes on the responsibilities for the financial risks; all loans are insured, and uses fixed transfer terms that are not subject to any changes in market conditions. The bank has been carrying out business and financial risk assessments before giving loans to their clients and it does not charge differently on loans regardless of the credit risks. However, credit officers have not been strictly adhering to the 5Cs of loan assessment before giving out loans and have not been effectively carrying out post disbursement monitoring of clients. Pride Micro Finance management is aware and has put in place systems that enhance its sustainability even in the event of loan defaulting and it has other sources of funding other than credits that can make it continue with its operations. The study recommends that; Management should strengthen the application of risk control measures to reduce the vulnerability to loss of funds in credit department; Credit supervisors to enforce post-disbursement monitoring of loan clients; Credit officers to ensure strict adherence to credit assessment guidelines before issuing out loans to clients and management should identify more paying sources of funding to enhance its stability in case of loss of money in credit.