THE EFFECT OF LENDING METHODOLOGY ON PERFORMANCE OF LOAN PORTFOLIO AMONG SELECTED MICROFINANCE INSTITUTIONS IN KENYA

Abstract

This paper examines the impact that lending methodology on the performance of loan portfolio based on a study of microfinance institutions in Kenya. The specific objectives of the study were to establish the effect of group and individual lending on performance of loan portfolio in micro-finance institutions, and to establish the effect of moderating factors on performance of gross loan portfolio. Secondary data was used in the study of 8 out of 56 microfinance institutions under umbrella Association of Microfinance Institutions of Kenya (AMFI). This was motivated by availability of data. Panel data analysis was applied to test hypothesis that there is no relationship between group lending on performance of loan portfolio. After running a regression in which loan portfolio performance is the dependent variable, the study found a positive significant coefficient of 0.79 and (p=0.42) on group lending without moderating factors. When