IDEAS home Printed from https://ideas.repec.org/a/bcp/journl/v7y2023i8p750-769.html
   My bibliography  Save this article

Effect of Credit Risk Management on Loan Performance among Microfinance Institutions. A Case of Réseau Interdiocésain De Microfinance (RIM Ltd) Kibuye Branch

Author

Listed:
  • Védaste Habamenshi

    (Assistant Lecturer in the School of Business Management and Economics, University of Kigali.)

  • Dr. Sébastien Gasana

    (Senior Lecturer in the Faculty of Social Sciences, Management and Development Studies, University of Technology and Arts of Byumba – UTAB.)

Abstract

This research assessed the effect of credit risk management on loan performance among microfinance institutions using a case of RIM Ltd Kibuye Branch during past five years (2015- 2019). A sample of 97 respondents was calculated using Yamane formula and randomly selected from a total population of 4334 clients of RIM Ltd including 2777 men and 1557 women, and 9 staffs. Quantitative approach was applied using a questionnaire designed in form of five levels Likert scale and analyzed using IBM SPSS Statistics 23; Qualitative approach was applied through open questions, interview and participant observation. The main findings of the research are: (i) Client appraisal exercise high effect on loan performance of RIM Ltd (overall μ = 4.87; σ =0.325); (ii) Credit risk control exercise high effect on loan performance of RIM Ltd (overall μ = 4.74; σ = 0.381); (iii) Collection policy exercise high effect on loan performance of RIM Ltd (overall μ =5.00; σ =0.000); (iv) Terms of credit exercise high effect on loan performance of RIM Ltd (overall μ =4.65; σ =0.407). The main challenges to effective credit risk management outlined by the research include: Deviation of the projects where the loan is used for a project that it was not requested for; Fluctuation of business climate; Some clients do not want working in solidarity; Clients having loans in SACCOs and RIM Ltd at the same time; and Poor entrepreneurship skills. Overall μ = 5.00; σ =0.000). The research recommended: (i) establishing special penalties for client who deviate the project; (ii) requesting guarantee for agricultural loans; (iii) improving RIM policy imposing solidary groups for accessing the loan; (iv) provision of clearance for loan applicants; (v) developing a culture of customer care whereby planning trainings for members; but also using trainings on entrepreneurship as a marketing strategy.

Suggested Citation

  • Védaste Habamenshi & Dr. Sébastien Gasana, 2023. "Effect of Credit Risk Management on Loan Performance among Microfinance Institutions. A Case of Réseau Interdiocésain De Microfinance (RIM Ltd) Kibuye Branch," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(8), pages 750-769, August.
    • Handle: RePEc:bcp:journl:v:7:y:2023:i:8:p:750-769
    as

    Download full text from publisher

    File URL: https://www.rsisinternational.org/journals/ijriss/Digital-Library/volume-7-issue-8/750-769.pdf
    Download Restriction: no
    File URL: https://www.rsisinternational.org/journals/ijriss/articles/effect-of-credit-risk-management-on-loan-performance-among-microfinance-institutions-a-case-of-reseau-interdiocesain-de-microfinance-rim-ltd-kibuye-branch/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Owango, M. & J. Staal, S. & Kenyanjui, M. & Lukuyu, B. & Njubi, D. & Thorpe, W., 1998. "Dairy co-operatives and policy reform in Kenya: effects of livestock service and milk market liberalisation," Food Policy, Elsevier, vol. 23(2), pages 173-185, April.
    2. Hennie Van Greuning & Zamir Iqbal, 2008. "Risk Analysis for Islamic Banks," World Bank Publications - Books, The World Bank Group, number 6923, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kaouther Toumi Lajimi & Rana El Bahsh & Serge Agbodjo, 2017. "The determinants of bank profitability, does Islamic ethics perspective matter ? A comprehensive study on Islamic banks vs. Conventional ones," Post-Print hal-04109833, HAL.
    2. Khawla Bourkhis & Mahmoud Sami Nabi, 2011. "Have Islamic Banks Been More Resistant Than Conventional Banks to the 2007-2008 Financial Crisis?," Working Papers 616, Economic Research Forum, revised 08 Jan 2011.
    3. Djelassi, Mouldi & Boukhatem, Jamel, 2020. "Modelling liquidity management in Islamic banks from a microeconomic perspective," Finance Research Letters, Elsevier, vol. 36(C).
    4. Mohd. Yusof, Rosylin & Bahlous, Mejda & Tursunov, Hamza, 2015. "Are Profit Sharing Rates of Mudharabah Account Linked to Interest Rates? An Investigation on Islamic Banks in GCC Countries," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 49(2), pages 77-86.
    5. Metin Aktas & Osman Taylan, 2021. "Determinants of Islamic Banks’ Profitability Using Panel Data Analysis and ANFIS Approaches in Saudi Arabia محددات ربحية المصارف الإسلامية باستخدام تحليل البيانات المَقْطعية وأساليب الاستدلال التَّكَي," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 34(2), pages 19-40, July.
    6. Osama Omar Jaara & Bassam Omar Jaara & Jamal Shamieh & Usama Adnan Fendi, 2017. "Liquidity Risk Exposure in Islamic and Conventional Banks," International Journal of Economics and Financial Issues, Econjournals, vol. 7(6), pages 16-26.
    7. Saeed, Momna & Izzeldin, Marwan, 2016. "Examining the relationship between default risk and efficiency in Islamic and conventional banks," Journal of Economic Behavior & Organization, Elsevier, vol. 132(S), pages 127-154.
    8. Girish Karunakaran Nair & Harsh Purohit & Nidhi Choudhary, 2014. "Influence of Risk Management on Performance: An Empirical Study of International Islamic Bank," International Journal of Economics and Financial Issues, Econjournals, vol. 4(3), pages 549-563.
    9. Hassan B. Ghassan & Stefano Fachin, 2016. "Time series analysis of financial stability of banks: Evidence from Saudi Arabia," Review of Financial Economics, John Wiley & Sons, vol. 31(1), pages 3-17, November.
    10. Zulkhibri Abdul Majid , Muhamed & Ghazal , Reza, 2012. "Comparative Analysis of Islamic Banking Supervision and Regulation Development," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 6(3), pages 113-162, April.
    11. Karbhari, Yusuf & Muye, Ibrahim & Hassan, Ahmad Fahmi S. & Elnahass, Marwa, 2018. "Governance mechanisms and efficiency: Evidence from an alternative insurance (Takaful) market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 56(C), pages 71-92.
    12. Fredrick O. Wanyama & Patrick Develtere & Ignace Pollet, 2009. "Reinventing The Wheel? African Cooperatives In A Liberalized Economic Environment," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 80(3), pages 361-392, September.
    13. Hidayah, Nunung Nurul & Lowe, Alan & Woods, Margaret, 2019. "Accounting and pseudo spirituality in Islamic financial institutions," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 61(C), pages 22-37.
    14. Simona Franzoni & Asma Ait Allali, 2018. "The Role of the Participatory Depositor in the Governance of Islamic Banks," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(8), pages 154-154, June.
    15. Khawla Bourkhis & Mahmoud Sami Nabi, 2013. "Islamic and conventional banks' soundness during the 2007–2008 financial crisis," Review of Financial Economics, John Wiley & Sons, vol. 22(2), pages 68-77, April.
    16. Aledjandro Lopez Mejia & Suliman Aljabrin & Rachid Awad & Mr. Mohamed Norat & Mr. In W Song, 2014. "Regulation and Supervision of Islamic Banks," IMF Working Papers 2014/219, International Monetary Fund.
    17. Naseem Al Rahahleh & M. Ishaq Bhatti & Faridah Najuna Misman, 2019. "Developments in Risk Management in Islamic Finance: A Review," JRFM, MDPI, vol. 12(1), pages 1-22, February.
    18. Katarzyna Czupa, 2016. "Zarzadzanie ryzykiem w instytucjach wykorzystujacych muzulmanskie produkty finansowe," CASE Network Studies and Analyses 0481, CASE-Center for Social and Economic Research.
    19. Mr. In W Song & Carel Oosthuizen, 2014. "Islamic Banking Regulation and Supervision: Survey Results and Challenges," IMF Working Papers 2014/220, International Monetary Fund.
    20. Mohammad, Sabri & Asutay, Mehmet & Dixon, Rob & Platonova, Elena, 2020. "Liquidity risk exposure and its determinants in the banking sector: A comparative analysis between Islamic, conventional and hybrid banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 66(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcp:journl:v:7:y:2023:i:8:p:750-769. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Pawan Verma (email available below). General contact details of provider: https://www.rsisinternational.org/journals/ijriss/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.