Microfinance Institutions of Bangladesh: The Effects of Credit Risk Management on Credit Performance

Abstract

The main aim of this study is to investigate the effects of credit risk management on the credit performance of microfinance institutions in Bangladesh. For this purpose, an econometric model with a cross-sectional dataset has been taken into account. The primary data is collected from125 officers of 35 microfinance institutions in Bangladesh. Multiple variables namely, credit policy, credit terms, credit appraisals process, credit risk control, credit collection procedures and Institutional factor have been adopted as the components of credit risk management. The data has been collected using a structured questionnaire completed by microfinance institutions officers of different levels in Bangladesh. The study reveals that credit policy, credit risk control, credit collection procedures and Institutional factor have positive effects on credit performance, and they are statistically significant at 5%, 10%, 1% and 1% levels respectively; while credit terms and credit appraisals process have positive but insignificant effects on the credit performance of microfinance institutions. The empirical findings will support the policymakers in restructuring their overall credit risk management strategies to improve and sustainable credit performance.

Keywords: Competition, Overlapping credit, Institutional factor, Effects, Insolvency