A Comparative Evaluation of the Effects of Credit Risk Control on the Profitability of Micro-Finance Bank

When assessing lending applications, banks face the problem of inadequate information needed to screen potential borrowers. The relevant information needed to evaluate the commitment of the entrepreneur and the likelihood of the business is challenging to interpret or even absent. This creates risk for the banks. Therefore, it is of paramount importance to give much consideration to credit management first before embarking on lending. In this research, we used both primary and secondary sources. We adopt a multi-stage sampling method by selecting a set of 21 respondents from a population of 52 credit officers. Questionnaires were used to collect data from the respondents while descriptive and inferential statistics were used to analyze the data collected and in testing the hypotheses. Specifically, we used simple percentage and regression analysis. We used the software SPSS (Statistical Package for Social Science) to implement the statistical techniques mentioned above. The results showed that microfinance banks need to strengthen their credit risk control measures to increase their profitability. This is because if properly adopted it helps to decrease the percentage of payments defaults. Credit management is important in improving the financial performance of microfinance banks and this is attributed to the fact that sounds and grounded credit management (client appraisal) allowed the bank to be efficient and have the availability of liquidity.