CREDIT APPRAISAL, COLLECTION POLICY AND LOAN PERFORMANCE OF MICROFINANCE BANKS IN KWARA STATE, NIGERIA

Abstract

The arrival of microfinance banks as another channel to mainstream the provision of financial services has become a major succour. Yet, the banks encountered high risk of default which is not unconnected with the peculiarities in its lending policies. In view of this, the study examines the effect of credit appraisal policy and credit collection policy on loan performance of MFBs in Kwara State, Nigeria. The study employed survey research design and the population consists of bank managerial and senior staffers from which one hundred and forty (140) were drawn conveniently as sample Data obtained through questionnaire were analyzed using descriptive and inferential statistics. The hypotheses for the study were tested using ordered logistic regression with average partial effects. The study found that collection policy significantly affects the loan performance of MFBs while credit appraisal policy does not significantly affect their loan performance as evidenced by their p-values. The study therefore concluded that collection policy influence loan performance of MFBs in Kwara State. Therefore, the study recommends that the credit appraisal policies should be restructure to capture the relevant information which will help these banks to determine the default intent of customers. Also, further monitoring mechanism should be put in place for bank loan collection policy in order that its effectiveness in increasing loan performance is improved.