A Survey of Credit Risk Management Techniques:: the Case of Micro- Finance Institutions in Kenya

Commitment to prudent lending is an important and current issue of discussion in the global banking system today. Banking prudence and efficiency to manage their risks in different business cycle and environment would help to alleviate crises and losses. The objectives of the study were to examine the credit risk management techniques applied by micro-finance institutions in Kenya; to find out how micro-finance institutions analyze the credit worthiness of their customers and to determine the credit risk management process utilized by micro-finance institutions (MFIs). From 35 MFIs sampled, this study found out that credit criteria, the six c?s of credit (character, capacity, capital, condition, collateral and common sense), diversification of loan services, credit reminder, training and development of staff, collateralizations as well as guidelines for credit approval process are important techniques to manage credit risk. The completion of this study is of great significance as it helps micro-finance institutions reduce the costs associated with managing credit risks. Good risk management techniques enable companies to seize opportunities as well as prevent disasters.