Influence of Strategic Credit Risk Management Practices on Loan Performance in Agricultural Finance Corporation of Kenya - Eldoret Branch

Abstract

The study was on the influence of strategic credit risk management practices on loan performance in the Agricultural Finance Corporation of Kenya (AFC) – Eldoret Branch. The researcher specifically sought to establish if credit reference bureau information and use of wholesale lending have significant influence on the loan performance in AFC-Eldoret Branch.  The Study further explored the staff perceptions on the effectiveness of these practices in managing credit risk and provided suggestions on how to effectively manage credit risk. This was checked against the trend of loan performance from 2008 to 2014 at the Agricultural Finance Corporation Kenya -Eldoret Branch. The findings of this study would form the basis in formulation of the policies related to credit risk management by the top level management of the Agricultural Finance Corporation. Literature was reviewed based on the objectives of the study. The theoretical and conceptual framework hypothesized the relationship between the independent and depend variables. The researcher found descriptive research design appropriate for this study. Target population was 45 employees of AFC working at Eldoret Branch. A sample size of 24 (53%) of the target population was found representative of the target group which included 2 managers; a branch manager and a credit manager and 22 credit officers. The managers were selected using purpose sampling while random sampling was used to select the credit officers. Questionnaires were used to collect data from the credit officers and an interview was carried out with the managers. Document analysis was used to collect secondary data. The quantitative data was analysed using simple descriptive statics, while inferential statistics- chi-square was used to determine if strategic credit risk management practices have a significant influence on the loan performance at AFC. The quantitative findings were presented using tables and figures, while qualitative data was presented in descriptive and narrative form in chapter 4. The study revealed that Credit reference bureau information contributed to reduced credit risks and hence good loan performance. On the contrary, wholesale lending, as a credit risk management did not actually reduce credit risks though the corporation uses it a practice to reduce credit risks. The study therefore recommends that the corporation reconsiders how best to ensure that wholesale lending contributes to positive loan performance. The study also recommended that AFC puts in place a credit risk management team whose mandate will be to establish well defined credit control policy and guidelines that are within the corporation’s range of implementation. AFC should also develop an integrated and comprehensive strategy aimed at reducing cases of loan defaults. If AFC implemented these recommendations, there would probably be reduced cases of credit risks. Consequently, the corporation would realize a positive loan performance.

Keywords: strategic credit management, lending conditions, loan performance