Examination Of Recovery Strategies On Repayment Performance Of Revolving Funds In Kenya

Abstract

Government credit programs operate on a revolving fund basis whereby new loans are disbursed made as existing loans are repaid. Available information has shown that repayment has been poor and program performance and sustainability has been a challenge. There was a need to investigate the influence of recovery strategies on repayment performance of these revolving funds which was the main objective of the study. The specific objectives of the study were: to establish the effect of client appraisal strategies, loan recovery implementation strategies, loan monitoring strategies, and loan collection strategies. The study also sought to establish the moderating effect of the borrower characteristics on the relationship between recovery strategies and repayment performance of revolving funds in Kenya. The study was guided by Credit Risk Theory, Systems Theory, and Moral Hazard Theory.The study was conducted to investigate the loan recovery strategies employed by government revolving funds in the 47 counties of Kenya. The study was conducted over a period of 18 months, from January 2021 to June 2022. A combined descriptive and correlational research design was used. The population of the study comprised of 337 youth officers and women enterprise fund officers in the 47 counties. Stratified random sampling and purposive sampling techniques were used to select a sample of 181 participants. Both secondary and primary data were collected and analyzed. Secondary data was analyzed qualitatively using document analysis. Primary data was collected using open-ended and closed-ended questionnaires. The data was compiled, edited, coded, and imported into SPSS for analysis. Descriptive and inferential statistics were used to analyze the data. The descriptive results were presented using frequencies, percentages, means, and standard deviations. To analyze the nature and magnitude of relationship between recovery strategies and repayment performance, correlation and regression analysis were conducted on the adopted linear model. To ensure that the statistical assumptions were met, the skewness and kurtosis for normality, Breusch pagan for heteroscedasticity, and VIF for Multicollinearity tests were performed. The significance of the variables was tested at a p-value of 0.05. The open-ended questions were analyzed using the three-text analysis method. The study findings showed that client appraisal strategy, loan monitoring strategies had a positive and significant effect on repayment performance of revolving funds in Kenya. Additionally, loan recovery implementation and loan collection strategies had an insignificant effect on repayment performance. The moderator’s effects on borrower characteristics had positive but insignificant effects on loan repayment performance. The study concluded that client appraisal and loan monitoring strategies strongly determine the rate repayment of revolving funds in Kenya. On the contrary, loan collection and recovery implementation strategies do not affect repayment performance of revolving funds. Individual characteristics, such as age and family size have an insignificant effect on repayment performanceThe study recommends that financial institutions should conduct thorough appraisals of borrowers to identify those who are likely to repay their loans. The borrowers' credit history and income stream are good indicators of whether they are likely to default. The government should also put in place effective strategies to monitor loans and partner with external debt collectors to ensure that borrowers repay their loans. Clear policies and specific penalties for defaulters should also be put in place to deter borrowers from defaulting.