Determinants of Credit Risk Management on Profitability: A Panel Analysis of Microfinance Banks in Tanzania

This study investigated the determinants of credit risk management and their impact on the profitability of selected microfinance banks in Tanzania, specifically focusing on Access Microfinance Bank, FINCA Microfinance Bank, and Maendeleo Microfinance Bank. The primary objectives were to assess how non-performing loans (NPLs), capital adequacy ratio (CAR), leverage (LEV), and bank size influenced return on assets (ROA) and return on equity (ROE). A quantitative approach with a panel data design covering the period from 2014 to 2023 was employed, utilizing a census sampling technique to encompass all licensed microfinance banks in Dar es Salaam. Data were collected from financial statements and analyzed using SPSS Version 26, with the Generalized Least Squares (GLS) regression model applied to address issues of heteroscedasticity and serial correlation. The findings indicated that NPLs and LEV negatively affected both ROA and ROE, while CAR and MFB size positively influenced profitability. Based on the results, the study recommended that microfinance banks enhance their credit risk management strategies by improving capital adequacy and minimizing non-performing loans to boost profitability. Policymakers were also advised to promote regulations that encouraged sound lending practices to enhance the sustainability of the microfinance sector in Tanzania, thereby fostering economic growth and financial inclusion.