Effect of Credit Risk Strategies in Improving Quality of Loans in Micro-finance Institutions in Kenya :a Case of Real People Micro-finance Kenya

Abstract

This study sought to establish the effect of Credit Risk Strategies on improving quality of loan portfolio at Real People Kenya thus enhancing the practice of strategic management and Risk Management with a focus on Credit Risk Management. Based on the Evolutionary theory of Strategic Management, the study established that effective Credit Risk Management strategy cannot be an afterthought. Indeed, it requires a comprehensive effort involving all levels of the organization, driven by top management. It was revealed that in order to succeed and thrive in today’s rapid-paced and tumultuous market, the organization must realise the need for an effective credit risk strategy to ensure portfolio quality. As a FI, Real People is in a business environment in which technology, finance and regulation change too quickly and unpredictably thus multi-year planning processes to address the outcome (risk) effectively. In this regards Evolutionary strategic management attempts to accelerate strategy development by breaking it into multiple smaller changes, with ongoing review enabling more rapid adjustments to the original plan which is at the core of risk management. Evolutionary approaches, while not optimal for a particular environment, allows the organization greater flexibility to adapt to unexpected change. The study design was a case study of RP where the researcher interviewed top management team. The qualitative data was analyzed using content analysis allowing the researcher to draw inferences from the data collected. The results from this study indicated that effectiveness of credit risk strategy in FI is critical for survival. The researcher recommended that given importance of business continuity there is need for MFIs in this case RP to incorporate greater emphasis on Credit Risk Strategies as part of the overall organization strategy.