Effects of credit risk management practice on loan portfolio quality (Case study on Dire Microfinance Institution)

From an MFI perspective, credit risk is one of the most important hazards because it is directly tied to the organization's loan portfolio quality. Savings and credit institutions are not immune to the difficulties that come with exposure to credit. Because MFIs typically lend to persons who are in lower economic brackets, there is an inherent risk associated with the money not being repaid. Given their significance to the economy, initiatives should be taken to assist the sector in resolving the credit risk management issue. By evaluating the credit risk management practices employed by the chosen firm, the research's primary goal is to establish the relevance relationship between the practice of credit risk management and the loan portfolio quality of DMFI. To learn more in-depth about the connection between DMFI's loan portfolio quality and its credit management practices, the researcher used both descriptive and inferential statistics research design. Both primary and secondary data was used in the investigation. Using a questionnaire, the key data were gathered from DMF's managerial and senior staff. By gathering quantitative information regarding the tactics that are employed and useful for reducing credit risk, descriptive statistics were utilized to analyze the opinions of the staff of a chosen microfinance institution. The study discovered that the DMFI's loan portfolio quality is impacted by the practices of risk identification, risk analysis, and risk monitoring. Further, a SWOT analysis of credit risk identification, efficient collateral rating, appropriate credit report and communication, ongoing follow-up and documentation, and registration of credit date all have a positive impact on the quality of the loan portfolio, whereas the effects of due date notification and foreclosure techniques are less significant. The survey also revealed that the firm's employees struggled to accept the credit risk management policy since they did not fully grasp it