EFFECTS OF CREDIT RISK MANAGEMENT TECHNIQUES ON LOAN PERFORMANCE IN MOI UNIVERSITY SACCO, ELDORET, KENYA

Abstract

In performing lending business SACCOs are always keen on the rules, regulations, principles and procedures that should be followed before the loan is granted. Despite the development of roles of credit risks management programmes, availability of principles, rules and regulations; non-performing loans is still a major challenge in Co-operatives SACCOs. The study aimed to examine the credit risks management techniques on loan performance in SACCOs and assess whether the techniques are helpful in reducing bad loan performance in lending business. The study specifically analyzed the impact of interest rates fluctuation on loan repayment, the effect of repayment period on loan performance of a SACCO and influence of Collateral Securitization on loan performance. The study was guided by Default Risk Models and Credit Scoring Models. For the purpose of this study a case study research design was employed. The study targeted about 2,782 respondents drawn from Moi University Savings and Credit Cooperative Society. A sample size of 242 respondents was obtained using simple random sampling technique. This study employed the use of structured questionnaires and interview schedule as methods of data collection. Data collected was analyzed using descriptive statistics such as frequency and percentages. In additional, inferential statistics such as Pearson correlation and chi square were used. Findings showed that interest rates have a strong significant positive relationship with loan performance. It was further revealed that there was a negative relationship between loan performance and high interest rates and the relationship was significant. Findings revealed that there is positive relationship between good loan repayment and a long repayment period. This implies that repayment period of a loan affects loan performance of a SACCO. The study concludes that Poor lending procedures contribute to poor performance and generally collateral securitization is an important security in loan management in SACCO. SACCO should protect itself from unforeseen contingencies of loan default due to the fact that the future is uncertain. Use of professional staff, proper assessment of loan applications and proper supervision of credit follow up would reduce bad loan performance in SACCO.