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Implication of Credit Supervision Practices on Portfolio at risk of Microfinance Institutions in Tanzania

Author

Listed:
  • Danstun B. Ngonyani
  • Harun J. Mapesa

    (St. Johns University of Tanzania
    Mzumbe University)

Abstract

This study seeks to establish the implication of credit supervision practices on portfolio management of microfinance institutions in Tanzania. Utilizing multivariate regression technique over sampled 219 microfinance institutions from Dar es Salaam, Morogoro and Dodoma regions, it documents two plausible results. First, the study finds that timely loan release and number of borrowers per loan officer have positive and statistically significant impact on portfolio at risk of microfinance institutions. Second, it reveals that operation cost per borrower and provision of training sessions to borrowers have negative and statistically significant impact on portfolio at risk of microfinance institutions. These results suggest that microfinance institutions can diminish portfolio risks by (1) decreasing number of days for processing clients’ loan applications and releasing funds; (2) decreasing number of clients per each loan officer in order to increase efficiency of loan management of the officers; (3) increasing training sessions on various skills given to their borrowers which will increase knowledge and skills of clients on the best ways to keep their business records and proper utilization of funds, and so successful repayments; (4) allocating enough budgets for overall supervisory purposes including loan appraisal processes, disbursement procedures and collection of funds from their clients.

Suggested Citation

  • Danstun B. Ngonyani & Harun J. Mapesa, 2019. "Implication of Credit Supervision Practices on Portfolio at risk of Microfinance Institutions in Tanzania," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 3(1), pages 27-45.
    • Handle: RePEc:trp:01jefa:jefa0022
    DOI: 10.1991/jefa.v3i1.a22
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    References listed on IDEAS

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    2. Olga Biosca & Pamela Lenton & Paul Mosley, 2011. "Microfinance Non-Financial Services: A Key for Poverty Alleviation? Lessons from Mexico," Working Papers 2011021, The University of Sheffield, Department of Economics.
    3. Claudio Ciborra, 2006. "Imbrication of Representations: Risk and Digital Technologies," Journal of Management Studies, Wiley Blackwell, vol. 43(6), pages 1339-1356, September.
    4. Erica Field & Rohini Pande, 2008. "Repayment Frequency and Default in Microfinance: Evidence From India," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 501-509, 04-05.
    5. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
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    More about this item

    Keywords

    Credit Supervision; Portfolio at Risk; Microfinance Institutions; Credit Risk;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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