The Effect of Credit Collection Policy on Portfolio at Risk of Microfinance Institutions in Tanzania

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Abstract

This paper presents the results of the study on the effect of credit collection policy on portfolio at risk of microfinance institutions in Tanzania. The study used cross-sectional survey data of microfinance institutions in three regions of Dar es salaam, Morogoro and Dodoma. Random sampling was employed to obtain a sample of 219 respondents in all three regions. Multiple linear regression analysis was used to determine the effect of credit collection policy on portfolio at risk of microfinance institutions. Results show that, there is a positive relationship between interest rates charged and portfolio at risk of microfinance institutions. On the other hand, the variable for grace period on loans and loan sizes to borrowers had a negative relationship with portfolio at risk of microfinance institutions. The study recommends that, microfinance institutions in Tanzania need to reconsider the interest rates charged to their clients to enhance sustainability of their loan portfolios. Moreover, microfinance institutions need to enhance provision of grace period to their customers. Also, establish efficient loan product sizes which suffice diverse client’s needs. That would encourage and broaden client repayments, contribute to financial performance and reduced risk of portfolio of microfinance institutions.

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