EFFECTS OF CREDIT TERM AND DEBT COLLECTION POLICY ON LOAN PERFORMANCE OF MICROFINANCE BANKS IN ZARIA METROPOLIS

Abstract

The inability of microfinance banks (MFBs) in Nigeria to sustain their operation
due to higher rate of non-performing loans is the major reason to carry out this
study. In order to address these issues, this study aim to investigate the effect of
credit term and debt collection policy on loan performance of MFBs in Zaria
Metropolis. The study used census sampling to select all the 36 management staff
and credit risk officers of five (5) MFBs operating in Zaria Metropolis. The data
collected was analysed using Partial Least Squares Structural Equation Modeling
(PLS-SEM) version 3.0. The findings revealed that credit terms positively and
positively and significantly affect loans performance, while insignificant effect
was found between debt collection policy and loans performance of MFBs in
Zaria Metropolis. The study recommends that MFBs in Zaria Metropolis should
pay much attention to ensure that borrowers understand the credit term before
collecting the loan since it significantly assists the bank to achieve higher loan
performance. While, debt collection policy should be redesign in such a way that
even if borrowers cannot repay their loan due to un-contingent factors like death
or dismissal from the workplace, the loan can be recover by MFBs