AN ASSESSMENT OF CREDIT MANAGEMENT PRACTICE IN MICRO FINANCE INSTITUTIONS (A CASE OFSOME SELECTED CREDIT AND SAVING INSTITUTION IN ETHIOPIA)

Abstract

Credit management is a comprehensive process made up of the monitoring of loan facilities, extension of credit, distinguishing the market segments as well as delineating the returns generated. The study aimed to assess the practice of credit management of Microfinance Institutions in Ethiopia. Descriptive research design was employed as a main research design. In order to gather the primary data the questionnaire was filled by respondents from each branches during the period of distributing the questionnaire. The data gathered was used to test and evaluate the practice of credit management of microfinance institutions in Ethiopia. The study found that credit administration dimension is effectively practiced. The credit management dimension of application and evaluation is found to be ineffectively practiced in the MFIs studied, while the follow-up dimension of the credit management found to be very effective. Further on, the study found that the credit management dimension of application and evaluation is challenging to be practiced. The study also found that resources scarcity and the involvement of fraud and unclear loan evaluations are the major challenges of practicing the application and evaluation dimension of the credit management. As the researcher had indicated, Policy and procedures are practiced effectively on credit management practices in case of Ethiopian MFIs, hence the institutions should maintain their present practices and stabilize as they are operating in the dimension. The MFIs should Review and monitor covenants with customers. Since, covenants are conditions agree to by the borrower as part of loan term in commercial loans. If the MFIs can effectively monitor, it can provide lenders with an early warning of loan deterioration.