INFLUENCE OF LENDING TERMS ON LOAN PERFORMANCE OF MICROFINANCE INSTITUTIONS IN KISII COUNTY (CASE STUDY; KENYA WOMEN MICROFINANCE BANK)
INFLUENCE OF LENDING TERMS ON LOAN PERFORMANCE OF MICROFINANCE INSTITUTIONS IN KISII COUNTY (CASE STUDY; KENYA WOMEN MICROFINANCE BANK)
Joan Moraa Kennedy -Postgraduate Student, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Oluoch Oluoch - Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
The purpose of the study was to investigate the influence of lending terms on microfinance institutions' loan performance in selected Kenya women microfinance Bank. The specific objectives included the following; to determine the influence of loan standards on loan performance of Kenya women microfinance Bank in Kisii County, to establish the influence of credit period on loan performance of Kenya women microfinance Bank and to examine the influence of value of collateral on loan performance. The study adopted descriptive research design. The study adopted simple random sampling technique to select 167 customers and census to select all 14 employees working in Kenya women microfinance Bank in Kisii County. The study concluded that there is a positive relationship between loan standards and loan performance of Kenya women microfinance banks and was statistically significant. Kenya women microfinance banks offers training on the need to make partial payments and clear their loans on time. There was a positive relationship between Credit period and loan performance of microfinance banks and was statistically significant. Microfinance banks require a deposit of collateral before the client take a loan. Collateral value was positively correlated and statistically significant on loan performance of Kenya women microfinance bank. The study recommended that borrowers should be allowed to provide their suggestions on the type of loan standards can lead to loan performance. Therefore, a more comprehensive understanding of the best loan standards should be embrace on borrower’s lending terms and conditions. On credit period, the study recommended that Kenya women microfinance bank should provide friendly payment modes and terms. There is need to consider the credit period with 5'cs model of client appraisal to determine a particular customer's credit period. The study further recommended that collaterals from defaulted borrowers should be used on sale for loan recovery. Microfinance banks should consider borrower’s ability to pay based on the collateral submitted value, repayment history, and the need to make site visits. The research suggested for a similar studies to be done to assess the effect of lending activities on financial performance of other microfinance institutions.
