Impact of Credit Risk Management Strategies on Non-Performing Loans in Microfinance Institutions in Mutare, Zimbabwe

Abstract

The study investigated the impact of credit risk management strategies on non-performing loans in Microfinance institutions in Mutare Zimbabwe. The main objective was to assess the impact of the credit risk management strategies used by Micro Finance Institutions in Mutare. This study employed a descriptive research design which helped in gaining valuable information on the particular problem under research and to be able to describe characteristics of the variables in this situation. The target sample was 50 microfinance employees from randomly selected Microfinance Finance Institutions in Mutare. Secondary data was collected from journal publications, published texts, and internet websites. Regression analysis was conducted to determine the effect between the variables studied by uprooting the influence of independent variables towards the dependent variable. Simple linear regression for each of the variables was done to show whether they do influence the dependent variable. There were no negative correlations meaning that the measured independent variables exert direct relationship towards the dependent variable. A larger population share the opinion that to a little extent (52.9%) does risk identification affect nonperforming loans in their respective financial institutions. Pearson’s correlation conducted in the study indicates level of association and influence of the identified credit risk management strategies being used by MFIs in Mutare on non-performing loans. The study concluded that risk assessment, analysis and appraisal affect the level of nonperforming loans to a greater extent; therefore, microfinance institutions should invest more in training staff in risk assessment, analysis and appraisal. The study recommends portfolio diversification, to lower the danger of concentration, encourage the diversification of Micro Finance Institution loan portfolios. Further studies can also be carried out on how nonperforming loans impact profitability and sustainability of the organization.