Author(s): Afolabi Taofeek Sola
Developing economies like Nigeria need a vibrant microfinance industry to fast-track and sustain their economic growth. However, lending activities in this sub-sector require effective strategies to reduce the risk of loan default. This study examined the nexus between credit management strategies and the loan performance amongst microfinance banks in Nigeria. Primary data were used to determine the impact of the identified credit management strategies (credit term, client appraisal and collection policy) on the loan performance of 180 microfinance banks. The data were sourced from the responses to a research questionnaire by the sampled credit managers/officers in the banks. The ordinal logistic regression technique was used to evaluate the relationships among the variables, with the aid of the Statistical Package for Social Science (SPSS). The results from the analysis revealed that client appraisal has a positive and significant impact on loan performance; credit term has a positive but non-significant impact on loan performance and collection policy has a negative but non-significant impact on loan performance. The study concluded that client appraisal is an integral credit management strategy influencing loan performance among microfinance banks in Nigeria. Therefore, it was recommended that microfinance banks in Nigeria should adhere to strict client appraisal techniques in granting loans. In addition, the government should create and maintain a functional and effective Credit Information Reporting system in the microfinance banking sub- sector, to assist the banks in carrying out thorough client appraisals.