Credit Policy and Default Rates in Micro Finance Institutions Case Study: Pride Micro Finance

ABSTRACT MICRO FINANCE INSTITUTIONS usually make profit by extending loans to mainly micro and small scale enterprises, which cannot get loans from commercial banks. Due to the collateral, those are required by the bank. However, it is reported that many of the clients of micro finance fail to pay the loans and therefore this leads to loss of funds. The study was to establish how loans are managed in micro finance institutions, more specifically in pride. The specific objectives were; to establish the nature of credit policy existing in pride, to establish the relationship between credit policy and default rates and to evaluate the levels of default rates. To satisfy the objectives, the researcher administered a questionnaire and analyzed the data. The major causes of laon default were inadequate loan support and inexperienced loan officers. The recommendations are that refresher course s should be organized for the loan officers to ensure that they have up to date information as regards to loan administration. Banks should also communicate and ensure that they don't lend to a customer who has an outstanding loan in another financial institutions. Strict supervision is thus necessary to ensure that funs are invested in the planned and evaluated.