Influence of Potent Strategies on Non-Performing Loans in Selected Microfinance Institutions in Nairobi County

Abstract

Financial institutions embrace unique strategies to overcome delinquency and insolvency associated with loan provisions. The study sought to examine the influence of potent strategies on non-performing loans in select microfinance institutions (MFIS) in Nairobi County, Kenya. The study was guided by three objectives: to identify the potent strategies adopted by MFIs on non-performing loans, determine the extent of non-performing loans, and the influence of potent strategies on non- performing loans in MFIs in Nairobi County. The theories of Adverse Selection, Moral Hazard, Chirwa's Default, and Microfinance Credit anchored the study. A descriptive research design was employed, where primary data was collected through close-ended questionnaires administered to 117 employees representing 13 MFIS in Nairobi County selected through a stratified purposive sampling technique. A response rate of 82.9% was attained. Primary data was analyzed through excel and Statistical Package for the Social Sciences (SPSS), version 25. The reliability index was reported through Cronbach's alpha. Regression analysis was conducted and the investigated potent strategies rejected the null hypothesis. A strong correlation (a 852) was recorded between the independent and dependent variables. Loan collection procedures (B-1.691) and CRB reports (B-139) proved to be a significant potent strategy in reducing non-performing loans. Financial education (B-0.35) and customer segmentation (B-0.180) indicated positive correlations to non-performing loans. The study recommends that MFIs should embrace the potent strategies of loan collection procedures, customer segmentation, CRB reports, and financial education in light of prevailing and anticipated market conditions as meaningful strategies to manage non- performing loans.