CREDIT MANAGEMENT PRACTICES OF MICRO FINANCIAL INSTITUTION

Abstract

This dissertation explores the concept of credit management and its evaluation in the operations of microfinance institutions (MFIs), specifically in recovering loans. Banks in Ghana have universal license which permit them to bank with customers regardless of their size but have long considered informal sector operators too small to bank and for the better part shunned them, because of the perceived risk of high loan defaults and low appetite for savings which can easily be explained by the low income earning capacity. However, with the entry of microfinance institutions into Ghana’s financial services industry, small businesses and individuals especially low income earners that were hitherto considered un-bankable simply on account of being in the informal sector, now have access to finance and credit. It is for this reason that MFIs in Ghana whose purpose is to serve the low income earners, must safeguard themselves with effective and efficient credit policies and practices in order to minimize their exposure to loan delinquency. In this work, the issue as to whether the credit management policies and practices of most MFIs in Ghana are effective in minimizing their exposure to bad debt loans has been seriously analyzed. The effectiveness of credit management has been critically considered in the light of the conclusion drawn from the analysis.