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Research Paper | Financial Engineering | Kenya | Volume 3 Issue 5, May 2014

Role of Credit Risk Management Practices in Sustainability of Micro Credit Schemes in Nakuru County

Mwaura A. Njeri | Wanyoike Daniel M.

Abstract: Over time financial exclusion for the poorest of the poor from the formal banking system has been a major development challenge hindering the flow of capital to the poor. Groups constituting as few as ten members engage in savings and loaning among themselves through the micro credit system. Credit lending in these groups is based on mutual trust which is questionable for future growth and sustainability of the groups. This study sought to assess credit risk management practices and their effects on financial sustainability of these groups. The study objective was to establish how credit risk management affects the sustainability of micro credit schemes. The study was conducted in Nakuru County; using descriptive survey research design. The target population comprised all the treasurers of the 127 micro credit schemes in Nakuru County. The sampling frame was drawn from the registrar of societies in Nakuru County. The sample size included in the study was 95 treasurers of Micro Credit Schemes in Nakuru County. Simple random sampling technique was used in respondents. Primary data was obtained from micro credit treasurers using structured questionnaire designed by the researcher. Data was analyzed using descriptive statistics and inferential statistics. The study has revealed that majority of the groups were keen on ensuring proper credit management practices in their groups. In addition; credit risk management was established to significantly; positively and strongly affect sustainability of micro-credit schemes. It is recommended that a standardized credit management practice should be developed from the best practices observed from micro credit schemes in Nakuru for adoption by start-up micro credit schemes to minimize the chance of mistakes at start-up.

Keywords: Micro-credit schemes, Sustainability, Microfinance, Group dynamics, Credit risk

Edition: Volume 3 Issue 5, May 2014,

Pages: 102 - 106

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