Thesis:

Assessing loan management practices on financial Performance of microfinance institution in Nairobi, Kenya

Microfinance banks offer important role on financial services in Kenya. This report acts as a set to assess the loan management practices on the financial performance of microfinance institution in Nairobi, Kenya. The study specific objectives were :to assess the influence of loan appraisal on financial performance of microfinance institution Nairobi city, Kenya, To examine the influence of loan documentation process on the financial performance of microfinance institution Nairobi, Kenya, to establish the influence of loan disbursement process on the financial performance of Microfinance institution in Nairobi, Kenya, to assess the influence of loan monitoring and recovery process on the financial performance of microfinance institution in Nairobi, Kenya. The study was steered by information asymmetry theory, alternative hypothesis (skimping) theory and financial intermediation theory. The study used descriptive research design, and its target population of 77 employees, an error margin of 0.05 and a sample size of 65 respondents was on branch managers and credit officers on 13 licensed microfinance institution within Nairobi, Kenya. Descriptive statistics that was used include the standard deviation, mean and frequency. Inferential statistics that was used includes that of the multiple regressions. The’ study considered primary data such as structured questionnaires and secondary data such as data obtain from financial reports and that from CBK portal. The researcher acquired vital letters and permit prior to data collection. For data analysis, Microsoft excel version 10 was used. The data gathered was displayed inform of tables. The study established that the loan appraisal had a coefficient regression of 0.39 and every unit increase of loan appraisal by 0.39 units resulted to 0.39 units increase on financial performance of microfinance banks in Nairobi, Kenya. The study determined that there was statistical significant association between loan appraisal with financial performance with a (β = 0.39 , P < 0.05). The study established that the loan documentation had a coefficient regression of 0.26 and every unit increase of loan documentation by 0.26 units resulted to 0.26 units increase on financial performance of microfinance banks in Nairobi, Kenya (β = 0.26 , P < 0.05). The study determined that there was statistical significant association between loan documentation process with financial performance. The study established that the loan disbursement process had a coefficient regression of 0.17 and every unit increase of loan disbursement by 0.17 units resulted to 0.17 units increase on financial performance of microfinance banks in Nairobi, Kenya with (β = 0.17 , P < 0.05). The study determined that there was statistical significant association between loan disbursements with financial performance. The study established that the loan monitoring and recovery process had a coefficient regression of 0.30 and every unit increase of loan monitoring and recovery by 0.30 units resulted to 0.30 units increase on financial performance of microfinance banks in Nairobi, Kenya. For the loan appraisal, (beta= 0.06, p value < 0.05) that indicates that loan appraisal has significantly effect on financial performance, loan documentation, (beta 0.17, p value < 0.05) that indicates that loan documentation has statistical significantly effect on financial performance, loan disbursement, ( beta 0.36, p value < 0.05) that indicates that loan documentation has significantly effect on financial performance, loan monitoring and recovery beta 0.09, p value < 0.05) that indicates that loan monitoring and recovery has statistical significantly effect on financial performance. The study determined that there was statistical significant association between loan monitoring and recovery with financial performance. The study indicates that all officers of microfinance banks should put aggressive measures on loan management practices as it turned out to have an impact on the financial performance of microfinance institutions in Nairobi, Kenya.