Assessment of Credit Risk Management In Micro Finance Institutions (In the case of Addis credit and saving institutions)

Abstract

Credit risk management is one of the most important activities in any company and cannot be overlooked by any economic enterprise engaged in credit irrespective of its business nature. Sound credit risk management is a prerequisite for a financial institutions stability and continuing profitability, while deteriorating credit quality is the most frequent cause of poor financial performance and condition. As with any financial institution, the biggest risk in microfinance is lending money and not getting it back. The study sought to an assessment of credit risk management in Microfinance Institutions in the case of Addis credit and saving institutions. The study adopted a descriptive survey design. The population of study consisted of 126 service delivery posts in Addis credit and saving share company that are members of AMFI. Primary data was collected using questionnaires where all the issues on the questionnaire were addressed. Descriptive statistics were used to analyze data. Furthermore, descriptions were made based on the results of the tables. The study found that client appraisal; credit risk control and collection policy had effect on credit risk management of MFIs in Addis credit and saving institution. The study established that there was strong relationship between credit risk management of MFIs and client appraisal, credit risk control and collection policy. The study established that client appraisal, credit risk control and collection policy significantly influence on credit risk management of MFIs in Ethiopia . Collection policy was found to have a higher effect on credit risk management and that a stringent policy is more effective in debt recovery than a lenient policy. The study recommends that MFIs should enhance their collection policy by adapting a more stringent policy to a lenient policy for effective debt recovery