The effects of Credit Risk Management practices on loan performance in microfinance institutions in Zambia.

Abstract

This aim of the study was to evaluate the impact of credit management practices on loan performance within microfinance institutions (MFIs) in Zambia. The study used a mixed methodology to collect data from 33 financial institutions’. All 33 financial institutions received questionnaires and interviews were held with 10 credit officers who did not answer questionnaires. Convenient sampling was used to select the 10 interviewees the data was analyzed using SPSS version 27 and the interviewees were chosen via convenient sampling. The findings revealed that evaluation of business plans, professionalism, and continuous monitoring reduces default rates and enhancing loan performance. The study conclusion was that there was a substantial correlation between lower default rates and scrutinizing business plans, professionalism considerations, and periodic monitoring of financed projects. Recommendations derived from the study include: Strengthening Business Plan Analysis: Advocating for comprehensive analysis and risk mitigation in business plans, alongside standardized training programs for staff, emphasizing Professionalism and Periodic Monitoring: Highlighting professionalism in borrower assessment and enhancing project monitoring mechanisms, enhancing Due Diligence and Screening Practices: Stressing the importance of comprehensive due diligence and standardized protocols for borrower assessments to ensure consistency and accuracy in loan applications. Key Terms: Credit management, Credit Risk, Credit appraisal, Credit appraisal, Collection policies, Microfinance signifies, Microfinance Bank, Risk, Performing Loan,Non-performing Loan.