THE IMPACT OF CREDIT MANAGEMENT ON THE FINANCIAL

PERFORMANCE OF DARA SALAM BANK IN HARGEISA

SAMIYA ABDILAHI ALI

/24/2019

A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE

REQUIREMENT FOR THE AWARD OF THE DEGREE OF

ACCOUNTING AND FINANCE , CIVIL SERVICE INSTITUTE,OF HARGEISA

OCTOBER, 2019

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 DECLARATION

This research project is my original work and has not been presented in any other University for
examination for an award of a degree

Signed…………………………….. Date ……………………………….

Samiya Abdilahi ALI

/24/2019

This research project has been submitted for presentation with my approval as the

University supervisor

Signed…………………………….. Date ……………………………….

Mr.Hassan Abdi Abdilahi

Department of Accounting and Finance,

Civil Service Institute

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 ACKNOWLEDGEMENT

I would like to extend my sincere gratitude and appreciation to all those who assisted me in
making this research a success. First and foremost I thank to ALLAH almighty for his mercies,
unfailing love, and providence and for giving me strength and seeing me through my studies.
The completion of this research project would not have been possible without the guidance, and
support from my supervisor Mr. Hassan Abdi Abdilahi to whom I am highly indebted in
innumerable ways. You have supported me throughout my project from the conception of the
research idea to the final stage with advice and patience that enabled me to understand the
research project. And also extend y appreciation to my family members as whole for their
unwavering support in all ways. Specifically to my mother Faiza aw ciise ,she is my inspiration
and always encouraging. God bless you in ways that only He can. To my brother Abdifatax
Abdilahi Ali -thank you for your invaluable motivation an support. Finally my appreciation also
goes to Civil Service Institute for giving me the opportunity to study this degree ,you are best
institution I have ever known.

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 DEDICATION

To my parents, for your love, encouragement and support that you have given that has brought
me this far.

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 ABSTRACT

Credit management is one of the most important activities in any company and cannot be
overlooked by any economic enterprise engaged in credit irrespective of its business nature.
credit management is a prerequisite for a financial institution’s stability and continuing
profitability, while deteriorating credit quality is the most frequent cause of poor financial
performance and condition.the probability of bad debts increases as credit standards are relaxed.
Firms must therefore ensure that the management of receivables is efficient and effective .Such
delays on collecting cash from debtors as they fall due has serious financial problems, increased
bad debts and affects customer relations. The study sought to determine the effect of credit
management on the financial performance of Dara- Salam Bank in Hargeisa. The study adopted
a descriptive research design and used close ended questioniare . The population of study
consisted of 90 employees of Dara- Salam Bank. A sample of 27 employees was selected from
the population used purposive sampling and stratified random sampling. Primary data was
collected using questionnaires where all the issues on the questionnaire were addressed.
Descriptive statistics were used to analyze data. Furthermore, descriptions were made based on
the results of the tables charts. The study found that credit management practice had effect on
financial performance. The study also established that there was strong relationship between
Credit management practice and financial performance of the Bank. The study also found that
Credit management practice increase the profitability of the bank The study also revealed that a
unit increase in credit management practice would lead to increase in financial performance of this is
an indication that there was positive association between credit management and financial
performance of bank.The study also established that there was strong relationship between Credit
management and financial.the study found that credit management challenges had effect on
financial performance. The study also established that there was positive relationship between
credit management challenges and financial performance of the bank.

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Table Of Content

CHAPTER ONE 1
INTRODUCTION 1
1.1 Background of the Study 1
1.2 Problem Statement 3
1.3 Objectives of the Study 4
1.3.1 General Objective 4
1.3.2 Specific objectives 4
1.4 Significance of the Study 4
1.5 Scope of the Study 4
1.5.1 Theoretical Scope: 4
1.5.2 Geographical Scope: 4
1.5.3 Time Scope 4
1.6 Description of the study Area/ Organization 5
1.7 Limitation of the Study 5
CHAPTER TWO 6
LITERATURE REVIEW 6
2.0 INTRODUCTION 6
2.1 Definition of Credit management 6
2.2 Theoretical Review 7
2.2.1 Credit Culture theory 7
2.2.2 The Loan System theory 7
2.2.3 Principles of lending theory 8
2.2.4 Credit Risk Control theory 9
2.3 Credit Management Variables 9
2.3.1 Client Appraisal 9
2.3.2. Character 10
2.3.3 Capacity 10
2.4 Empirical Review 11

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CHAPTER THREE 13
RESEARCH DESING 13
INTRODUCTION 13
3.1 Variable Definitions 13
3.1.1 Credit Management 13
3.1.2 Financial Performance: 13
3.2 Research Type 13
3.3 Research Approach 13
3.4 Sample Design 14
3.4.1 Population 14
3.4.2 Sample Size 14
Table 3.4.3. (A): Study sample size structure 14
3.5 Sample Techniques 14
3.6 Sources of Data 15
3.6.1 Primary Data Source 15
3.6.2 Secondary Data Source 15
3.7 Data Collection Instruments 15
3.7.1 Close Ended Questionnaire 15
3.7.2 Structured Interview 15
3.8 Data Presentation 15
3.9 Data Analysis and Interpretation 15
3.10 Ethical Consideration 16
CHAPTER FOUR 18
4.1 Introduction 18
4.2 Back ground information of respondents. 18
4.3 The Credit Management Practices 21
4.4 Credit Management and Financial Performance 25
4.5 challenges of the credit management 27
CHAPTER FIVE 30
5.1 Introduction 30
5.2 Conclusion 30
5.2.1 Credit Management Practice 30
5.2.2 Credit management and Financial performance 31

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5.2.3 Challenge of Credit Management 31
5.3 Recommendations 31
REFERENCES 34
APPENDIX A: QUESTIONNAIRE 36
APPENDIX B: INTERVIEW 41

List Of Tables
Table 4.2.1 Age of Respondents
Table 4.2.3 Educational Level

Table 4.3.2 Efficient of Credit Risk Analysis Mechanism And Identify Potential Risks 21
Table 4.3.6 Credit Management Practices And Credit Administration And Top Management 23
Table 4.4.1 The Credit Management Policy creates a Common Set of Goals 24
4.4.5 customer credit application forms and credit management 25
Table4.5.2 Financial Managers Can Mitigate Much Of This Risk By Following 27

List Of Figures
Figure 4.2.2 Gender of respondents 19
Figure 4.2.4 Marital Status of Respondents 20
Figure 4.3.1 the credit risk management steps and control of credit risk 20
Table 4.3.2 Efficient of Credit Risk Analysis Mechanism And Identify Potential Risks 21
Figure 4.3.3 adequate procedures and control are credit risk management procedures 21

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Figure 4.3.4 Reviews of procedures and controls of credit management 22
Figure 4.3.5 Regular reviews on collection policies and improve state of credit management. 22
Table 4.3.6 Credit Management Practices And Credit Administration Unit And Top Management 23
Table 4.4.1 The Credit Management Policy creates a Common Set of Goals 23
Figure 4.4.2 credit management lower the capital locked and reduces getting into bad debts 24
Figure 4.4.3 good credit management system increased profitability and reduce loan defaults 24
Figure 4.4.4 lower credit exposure and bad debts therefore financial health 25
4.4.5 customer credit application forms and credit management 25
Figure 4.5.1 As financial conditions change and the bank may likewise change 26
Table4.5.2 Financial Managers Can Mitigate Much Of This Risk By Following A Set Credit Policy 26
Figure 4.5.3 financial turbulence and high failure rates can make it difficult to manage 27
Figure 4.5.4 The Deteriorating credit quality and poor financial performance and condition 27
Figure 4.5.5 The delays on collecting cash from debtors and financial problems, 28
Figure 4.5.6 The Failure to assess customers capacity to repay results in loan defaults 28
Figure 4.5.7 Inefficient data management is challenge in the credit management 29
Figure 4.5. 8The bad loans have an impact and financial performance of the bank 29

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 CHAPTER ONE
INTRODUCTION

1.1 Background of the Study

Credit is one of the many factors that can be used by a firm to influence demand for its products.
According to (wachowiz, 1998)firms can only benefit from credit if the profitability generated
from increased sales exceeds the added costs of receivables. (brealey, 2003)define credit as a
process whereby possession of goods or services is allowed without spot payment upon a
contractual agreement for later payment. Myers and (brealey, 2003)describe credit management
as methods and strategies adopted by a firm to ensure that they maintain an optimal level of
credit and its effective management. It is an aspect of financial management involving credit
analysis, credit rating, credit classification and credit reporting. (nelson, 2002)views credit
management as simply the means by which an entity manages its credit sales. It is a prerequisite
for any entity dealing with credit transactions since it is impossible to have a zero credit or
default risk.
Credit Management concept has operated for centuries in different parts of the world for
example, “susus” in Ghana, “tandas” in Mexico, “tontines” in West Africa and “pasanaku” in
Bolivia. One of the earliest and longest serving micro-credit organization providing small loans
to rural poor dwellers with no collateral is the Irish loan Fund system initiated in the early
1700”s by Jonathan swift. His idea began slowly in 1840s and became a widespread institution
of about 300 branches all over Ireland in less than one decade. The principal purpose was to
advance small loans with interest for short periods. However, the pioneering of modern
microfinance is often credited to Dr. Mohammad Yunus, who began experimenting with lending
to poor women in the village of Jobra, Bangladesh during his tenure as a professor of economics
at Chittagong University in the 1970s.(jaky, 2000)

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Kabaa Microfinance Institution (K-MFI) The mother organization, Doses of Hope was
established in 1997 in Netherlands by Somali women in the Diaspora. Locally in Somaliland,
Doses of hope started a lending project in 1999 with a clientele of 100 women (interviews with
management). It issues a sharia compliant loan of maximum $ 500 through groups of 25
members organized in smaller cells of five members (buys good/item and lends to borrower with
a profit margin).There exists no regulatory framework for the microfinance sector, so Kabaa
remains registered as an NGO and relatively unregulated by the government. From 1999 to 2007,
Kabaa engaged in conventional Grameen Bank-style microfinance. However, as the organization
attempted to expand, its management declares that it was frequently confronted by community
members and religious leaders who were more and more disapproving of the conventional (non-
Islamic) style of its loan products. In 2008, in partnership with Oxfam, Doses of Hope began the
transformation of the program into an independent Islamic microfinance institution, registered as
NGO in February 2009.(adem, 2013)

Kabaa’s main microfinance product has an average loan size of $140-200, with a maximum of
$300. The Murabaha ‘mark -up’ is 8 percent, with loan terms between 4-6 months, paid either
ona weekly or monthly basis. There is compulsory savings for all microfinance borrowers, but
nocollateral. Groups are made up of five members, who known and trust each other; and five
groups make up an association. Each member must have a guarantor and if a client defaults,
there is first an attempt at collection within the group, then within association, and then with the
guarantor. Since its transformation to an Islamic banking model, Kabaa declares a 98%
repayment rate. The MFI plans to set up four branches in rural and urban locations of Hargeisa
and Gabiley districts, with a goal to reach 5,000 active borrowers by 2012. (adem, 2013)

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1.2 Problem Statement
(Gitman L.J, 1997)According to The credit management is a prerequisite for a financial
institution’s stability and continuing profitability, while deteriorating credit quality is the most
frequent cause of poor financial performance and condition. the probability of bad debts
increases as credit standards are relaxed. Firms must therefore ensure that the management of
receivables is efficient and effective .Such delays on collecting cash from debtors as they fall
due has serious financial problems, increased bad debts and affects customer relations. If
payment is made late, then profitability is eroded and if payment is not made at all, then a total
loss is incurred. On that basis, it is simply good business to put credit management at the front
end by managing it strategically. Credit management is very important to banks as it is an
integral part of the loan process. Credit management comes to maximize a bank’s risk adjusted
rate of return by maintaining credit risk exposure within acceptable limit in order to shield them
from the adverse effect of credit risk on their financial performance.

Good credit management systems result into increased profitability due to reduced loan defaults.
Thus management should adopt and practice prudent credit risk management so as to safeguard
the assets of the bank. This suggests that better credit risk management generates income that
is partly channeled to bank profits..(Mille, 2009)

In the case of Somaliland, the credits given by the local Banks i.e. the Dahabshiil and Dara-
Salama Banks are mostly micro-credits which cash will not be paid but commodities will be
bought for credit takers in a means of small shops. However, there are housing and Automobile
investments as well as agriculture in very rare special cases. Given the Somaliland economic
situation its unpredictable that credit takers can pay back their credit and in that regard credit risk
management and loan recovery is still a challenge to all Somaliland credit banks. The banks may
face challenges in a way that people do not return in their debts or pay it late which can
negatively effect on the value of the invested hard currency. Obviously, when debt repayment is
overdue-repayment, it can cause financial problem to the creditors Although credit management
is a major concern of the Banks, there is no any prober researches about the case, in that regard,
this study was examine the impact of credit management on financial performance of Salama
Bank in Hargeisa to fill the knowledge gap..(abdilahi, 2009)

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1.3 Objectives of the Study
1.3.1 General Objective
The General Objective of this study was to examine the impact of credit management on
financial performance of Dara- salama bank in Hargeisa.

1.3.2 Specific objectives

● To investigate the credit management Practices

● To examine the influence of credit management on financial performance

● To Determine the challenges of the credit management

1.4 Significance of the Study

This study was of great relevance to the organization under study as well as other financial
institutions .The non-financial business firms, whether manufacturing or service oriented shall
also benefit from the research findings. This is because the result of the study shall enable the
users especially banks to appraise its credit policies and to review its operations critically for
more result oriented approach in the dealing with its credit facilities.

1.5 Scope of the Study

1.5.1 Theoretical Scope:
This study was covers to the impact of credit management on financial performance.

1.5.2 Geographical Scope:

The Geographical Scope of this research was based on Somaliland especially in hargeisa
district.

1.5.3 Time Scope

This study was generally be conducted (Apr-sep 2019).

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1.6 Description of the study Area/ Organization
Hargeisa is a capital and largest city of the Republic of Somaliland According to Demographic,
Hargeisa has a population of around 750,000 residents as of 2015. It is the 652nd largest city in
the world by population size. situated in the WaqooyiGalbeed province of the Somaliland region,
Hargeisa is the seat of the regional parliament, the presidential palace and government ministries,
the municipal administration. Hargeisa is located in a mountainous area, in an enclosed valley of
the north western Galgodon (Ogo) highlands. It sits at an elevation of 1,334 meters ( 4,377 feet)
above sea level. Hargeisa has semi-arid climate. The city generally features warm winters and
hot summers. However, despite its location in the tropics, due to the high altitude Hargeisa
seldom experiences either very hot or very cold weather. Hargeisa has eight sub-districts.
( Duale,2015).

1.7 Limitation of the Study

The limitation of this study will be:

1. Language barrier from respondent.

2. Missing answers that the respondents don’t attempt to answer.

3. Refusing the respondents that involve the questioner.

CHAPTER TWO

LITERATURE REVIEW

2.0 INTRODUCTION
This chapter summarizes the information from the available literature in the same field of study.
It will review theories of credit management as well as empirical studies on credit management
and financial performance

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2.1 Definition of Credit management
There are many definitions given for credit management by different scholars. Among these
some are here cited as follows: Credit management is implementing and maintaining a set of
policies and procedures to minimize the amount of capital tied up in debtors and to minimize the
exposure of the business to bad debts.((http://www.smallbusiness.wa.gov.au/assets/Small)-
Business-Briefs/small-business-brief-credit-management.pdf, 2011)). Credit Management, from
a debtor’s point of view, is managing finances especially debts so as not to have a tail of
creditors lurking behind your back. Credit management is a responsibility that both the debtor
and the creditor should seriously take (http://www.selfgrowth.com/articles/Tabije3.html). When
it functions efficiently, credit management serves as an excellent instrument for the business to
remain financially stable.

According to(Asiedu-mante-e, 2011) credit management involves the setting up of legal and
formal systems and policies that will guarantee that the appropriately designated staff is well-
positioned to grant credit, the facility goes to the people with the right credit history, the loan is
given out for profitable activities or for businesses which have a strong financial and technical
viability, the correct amount of credit is disbursed, the credit can be recovered and the flow of
management information is sufficient within the organization to allow for effective monitoring of
credit activity. He therefore viewed it as the putting in place of systems that act as a check right
from the credit granting process to the point of collection.

2.2 Theoretical Review

2.2.1 Credit Culture theory
Credit culture theory, according to (Hill. Kamath R., 2010)can be defined as a bank’s approach
to all issues correlated to the administration of credit risk. He continued by stating that if it is to
attain a healthy credit risk portfolio, it must be synchronized with the strategic direction and
organizational culture of the financial institution. The culture must have the capacity to deliver
the service required by the institution to meet the needs of its clients in a timely manner It can
only do this if it is in harmony with the overall strategic direction of the financial institution and
is pioneered by the top echelon of the financial institution. Because the credit culture ought to
maintain a balance between assuming new risks and imposing limits on the amount of risk at the
same time, it is bound to run into all of kinds of resistance. Top management is the only source

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that can ensure that the culture not only supports appropriate credit standards, but is also
profitable enough not to cause the bank to lose out on good business.

2.2.2 The Loan System theory

Before endorsing any credit facility, it records the bank to ensure that the debtor has a practical
and viable proposal. However, the marketability of a loan proposition does not depend all
together on the quantum of collateral provided by the borrower. The financial intermediary needs
to establish the amount of credit risk latent in the credit proposal and within the boundaries of
that risk, a decision has to be made whether to accept or reject the proposal. An effective credit
management system provides the right framework for such decisions(puri, 2013)

Bank lending is premised on the assertion that the debtor has the willingness and capability to
requite the loan at all stages in their business transactions with the bank. However, the capacity
to pay back depends on future income streams and the disposition to repay has to be based on the
pre-existent commitment that has been undoubtedly demonstrated by the borrower. It is a
statement of faith because the lender relies largely on the debtor’s adroitness and competence
despite business downturns to at least guarantee future cash flows and ensure the flow of regular
payments. The three conditions which should be in existence at the time the borrower seeks a
loan from the bank to be able to strengthen for instance his line of business according to (puri,
2013) are:

i) Willingness or intention on the part of the borrower to repay the loan as per the agreement
ii) The purpose for which the loan is requested or sought for by the borrower
iii) The conditions which can set the trend for the future
The willingness or desire to pay back a facility granted is somewhat simple to establish for an
existing borrower in practice. If a borrower happens to have a sound history of payment of loans
including debt servicing, they are likely to continue making regular payments in the future as
well. The only circumstance that could influence this pre- condition is an uncontainable event
such as fire outbreak or a major infrastructural destruction. This condition is strenuous to judge
for anyone, much less to talk of a new borrower, if he has no previous business experience or
skill. (puri, 2013)

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2.2.3 Principles of lending theory
(Gaurav, 2010) pinpointed certain criteria which are universally adhered to by most financial
institutions in appraising credit propositions as follows:

❖ Safety: The banker must guarantee that the amount granted by him reaches the legitimate
debtor and is appropriated in a manner that will make it secure at the time of giving as well as
remain so throughout the period, and subsequent to fulfilling a valuable need in the business
where it is utilized, is reimbursed with premium.
❖ Liquidity: The debtor ought to be in the capacity to make payments within a feasible time
frame after a notice of repayment is sent. This is termed as the grace period and failure to meet it
usually attracts a penalty.
❖ Purpose; The objective ought to be monetarily compensating so that the cash stays secured as
well as provide an ensured wellspring of monetary streams to meet reimbursement plans.
❖ Profitability: the bank should be able to obtain some reasonable profit from the loan
❖ Security; Security is considered as a protection or a coverage to fall back upon in the event
of a crisis
❖Spread ; ensuring that advances are spread across a broader spectrum of economic activities.

2.2.4 Credit Risk Control theory

(coyle, 2000)Credit risk is the probability that the return supposed to be earned on an investment
or risky asset extended will depart from that, which was expected. characterizes credit risk as
debts emerging from the unwillingness or failure of loan clients to meet their commitment of
what is outstanding in full and on time. The major sources of credit risk include limitation in
institutional capacities, unsuitable guidelines on loan management, high interest rates, lack of
effective supervision of credit lines, unsuitable laws, low levels of capital & liquidity, poor loan
underwriting, reckless lending, poor credit appraisal, poor practices of lending, interference by
government and the inability to enforce oversight responsibility over financial institutions by the
central bank. To reduce these risks, it is fundamental for the money related framework to have;
all

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round strongly funded banks, provision of financial services to an expansive range of clients,
sharing of credit data about borrowers through credit reference departments, adjustment of
premium rates, decrease in non-performing advances, building of higher levels of deposits
gathered by banks and expansion of credit to prospective clients. Advance defaults and
nonperforming credits should be lessened (coyle, 2000)

2.3 Credit Management Variables

2.3.1 Client Appraisal
The initial phase in restricting the risk involved in granting a loan facility includes screening
customers to guarantee that they have the readiness and capacity to reimburse the advance. A lot
of financial institutions tend to utilize the 5Cs model of credit also known as credit standards to
appraise a customer as a potential borrower. The 5Cs act as a guide for financial institutions to
improve loan portfolio, as they get to know their customers better. These 5Cs are: character,
capacity, collateral, capital and condition. (Abedi, 2000)

2.3.2. Character
This assesses the client's qualities in order to examine the willingness of the prospective client to
meet the credit commitments. Highlight the accompanying variables to consider when
investigating applicant's character. This is carried out by factoring the client's saving conduct
from the bank records, the level of training, mental status, occupation dependability, contact,
connection to government offices and the past dealings with bank. The borrower who seeks to be
a loan beneficiary of cash endowed to the bank by its depositors must be very honest-someone
who will keep their word and who can be trusted.Current trends in technology allow for credit
investigation to be carried out helping to not just uncover past impressive and awful conduct in
reimbursement of advances and handling of obligations but will likewise uncover the degree of a
man's acquisition of credit limit. The higher the building up of a person’s credit profile, the
higher the response of the person to changes in interest rates or individual circumstances.
(Kakuru ,2000)

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2.3.3 Capacity
This assesses the client's capacity to pay the obligation when given in the obliged time period.
This is fundamental particularly for business, regardless of whether advances are included. This
is determined by assessing the estimation of client's capital and resource offered as guarantee
against the advance. The borrower must be, in any event, capable, if not a specialist at their
employment or in their calling and should be able to produce strong evidence to support the
viability or otherwise of the business. (Ditcher, T.,2003)

2.4 Empirical Review

Byusa and Nkusi (2012) investigated the effects of credit policy on bank performance in selected
Rwandan Commercial banks. The objective of the research was to look into how credit policy
affected the performance of the commercial banks selected. According to the findings the banks
selected had an increase in their accounts and account base while there was an improvement in
their financial indices which increased their profits. There was competition in the banking sector
which increased spreads. The high spreads and a high interest rate margin is evidence of
inefficiency and poor competition. Djankov, McLiesh and Shleifer (2007) studied the effects of
credit management on loan repayment in private credit in 129 countries in Eastern Europe, the
managers in the finance department were interviewed and an analysis of the data was done by
use of descriptive statistics. According to the conclusion of the study, credit management
practices facilitated payment of loan.

Muturi (2016) assessed the effect of credit management practices on loan performance in deposit
taking microfinance banks in Kenya. This study sought to find out how credit management
affected loan repayment. A descriptive research method was used. Analysis of the primary data
was done using standard deviation and mean. The researcher also used inferential statistics with
the help of linear regression models. The model established the effect credit risk management

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had on the repayment of loans. From the findings, the study found that the terms of credit, credit
standards, collection policy and credit policy had an effect on the performance of the firms.

According to Moti (2012) the study findings, the proper credit management system is an
essential party of any firm and cannot be ignored by any firm that deals with credit services.
Proper Credit management increases the profitability and stability of a firm. studied the
effectiveness of credit management system on loan performance: empirical evidence from
microfinance sector in Kenya. The goal of the research was to determine how effective credit
management was on the performance of loan in MFIs. The specific goals was to determine the
effect of control measures, credit terms, credit risk, credit collection policies and credit appraisal
on the performance of loans. The study used a descriptive research method. The respondents who
provided the data were officers who worked at MFIs in Meru. The findings showed that the
collection policy highly affected the repayment of loans with =12.74, P=0.000 at 5% significance

Owizy (2013) examined management of credit impact on financial performance of Nigerian

banks, the case of UBA Plc. Banks annual reports provided the secondary data which was
obtained from sampled and accounts for three years 2004-2008. For data analysis regression,
descriptive and correlation methods were used. According to the results management of credit
did affect Nigerian banks profitability. Mwangi (2010) investigated on factors that affect MFIs
credit risk management practices in Kenya. The study’s specific objectives included how
portfolio quality, market infrastructure and market concentration affected the credit risks of
MFIs. According to the study results the three factors did affected credit risk of MFIs. Nyakeri
(2012) carried out a research on how practices relating to management of credit affects financial
performance in SACCOS in Nairobi .The research specific objectives included the effect of
credit approval process, loan portfolio, credit score and the Risk analysis on the profitability of
the MFIs. According to the findings the credit risk analysis improved the firm’s profitability,
loan portfolio and returns of the MFIs.

Nagarajan (2011) assessed the risk management for MFIs in Mozambique concluded that the
process of managing risks is ever changing and could be developed and tested when risk
occurred. The processes need to consider the commitment of all the firm stakeholders for it to be
planned and executed properly. An encouraging finding was that minimizing losses was possible
by managing cash flow properly management of cash flows and portfolios, by coming up with

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robust institutional infrastructure, use of skilled employees and insisting of client discipline and
effectively coordinating the stakeholders. Nagarajan (2001) in his study of risk management for
microfinance institutions in Mozambique found that risk management is a dynamic process that
could ideally be developed during normal times and tested at the wake of risk. It requires careful
planning and commitment on part of all stakeholders. It is encouraging to note that it is possible
to minimize risks related losses through diligent management of portfolio and cash-flow, by
building robust institutional infrastructure with skilled human resources and inculcating client
discipline, through effective coordination of stakeholders.

CHAPTER THREE

RESEARCH DESIGN

INTRODUCTION
This section presents the overall research design of the study, research methods, sources of data,
sampling techniques, data gathering instruments and the study, procedures of data collection,
methods of data analysis and ethical considerations.

3.1 Variable Definitions

3.1.1 Credit Management: The independent variables will be the credit management Credit
management is defined as the efficient control and co- ordination of loanable fund so as to keep
credit and the investment in credit at optimal level. The study focused on control and co-
ordination of loanable fund

3.1.2 Financial Performance: The dependent variable of the study will be financial
performance is the Bank’s ability to generate new resources from day to day operation given
period of time. The study focused on Financial performance

3.2 Research Type

The study was use a descriptive research. the reason Descriptive research information
concerning the current status of the phenomena to describe "what exists" with respect to

Variables or conditions in a situation. The technique was appropriate as it involved a careful in

depth study and analysis on the impact of credit management on the financial performance

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3.3 Research Approach
The researcher was use both qualitative and quantitative approach. The qualitative approach
deals with the subjective assessment of attitudes, opinion and behavior of the respondents .In
addition, the quantitative approach will use to measure percentage and ratios of the situation and
to quantify McMillan & Schumacher, 1993). (This means that reader and beneficiaries will
understand well the main importance of this research.

3.4 Sample Design

3.4.1 Population
According to Ogula (2005), a population refers to any group of institutions, people or objects
that have common characteristic. The target population of this study was employees in Dara-
salam Bank especially investment department and other employees. They were consist 90
respondent.

3.4.2 Sample Size

To achieve the core objective of the study, it is very crucial to identify the sample size of the
study. A sample is a smaller group or sub-group obtained from the accessible population
(Mugenda and Mugenda, 1999). The sample size of this study will be 27 respondents

Table 3.4.3. (A): Study sample size structure

Department Target Population Sample Size

Investment 20 15

Other Employee 70 12

Total 90 27

To get the sample size used the rule of thub that says if the population less tan 1000 take 30%
To determine sample size representing a population 90*30%/100 = 27

3.5 Sample Techniques

The researcher was use non-probability sampling particularly purposive sampling the reason
that these participants were in manager’s positions and assume to be major sources of
information for the data gathering of the study. define purposive sampling as one which
involves selecting a sample based on experiences or knowledge of the group to be sampled.

23
Besides, probability sampling particularly stratified sampling was use because the target
population of the research belongs to different department. So, if the population which a sample
is to be drawn does not constitute homogeneous group, then stratified sampling technique is
applied so as to obtain a representative sample and the researcher will do so.

3.6 Sources of Data

The researcher was get data from both primary and secondary data sources.

3.6.1 Primary Data Source

The primary data Source of this study was Questionnaire and Interview.

3.6.2 Secondary Data Source

Secondary data collection surveyed methods supplementary to the above method where data was
be obtained reading related literatures from different areas such as text books, the internet and
other materials (such as academic journals, news papers, e.t.c) and it boosted up the usefulness to
the study. Besides, the researcher will use the secondary data in the literature review.

3.7 Data Collection Instruments

3.7.1 Close Ended Questionnaire
The researcher was use to collect the primary data in a form of closed ended questionnaires
because it is easy to apply as most respondents will be well educate and can fill in the questions
easily or with little guidance. According to Best and Kahn (2006), questionnaire is used when
factual information is desired.

3.7.2 Structured Interview

The researcher was use interview specially structured interview particularly close-ended
questions. Were managers/departmental heads, They will consist 4 respondent The close-ended
questions was ask all respondents for the right piece of information and could also require the
respondent to maybe choose the right list of alternatives. Definition A structured interview is
where all the questions have been prepared from beforehand and questions are predetermined.
the reason interviewer was able to change all questions at whatever time, they want to follow up
questions depending on the responses of the interviewee.

3.8 Data Presentation

The researcher was present his/her/ study by using Charts , Table , and Figures from the study.

24
3.9 Data Analysis and Interpretation
The researcher was used descriptive analysis to analyze data by using SPSS and Excel. However
personal coding and categorizing data will be done manually.

3.10 Ethical Consideration

this study the researcher was consciously consider ethical issues in seeking permission, avoiding
deceptions, maintaining confidentiality, respecting the privacy, and protecting the anonymity of
respondents that will encounter during the study. Thus, to collect data, the researcher receive
support letter from Civil Service Institute, Department of Public Accounting about the research
topic and asked permission from the administrative bodies of Dara-Salam Bank to conduct the
research. Besides to this, the researcher told the purpose of the study to the respondents and
ensured voluntary participation, as it is only for academic purpose with full confidentiality. The
cover letter of the questionnaire will include the purpose of the study and about confidentiality
and necessary instructions for respondents. In addition to these, anonymity will ensure when
writing reports.

CHAPTER FOUR
4.1 Introduction
This chapter presents the findings of the study. The chapter highlights the back ground
information of the respondents of Dara-Salam Bank. Discussion and analysis of the different

25
responses to some key questions is also done in this chapter following the research objectives
given below

1. To investigate the credit management Practices

2. To examine the influence of credit management on financial performance

3. To Determine the challenges of the credit management

4.2 Back ground information of respondents.

This section shows the gender of the respondents, age bracket, Marital Status and highest level
of education attained.

4.2.1 Age Bracket Of Respondents.

Respondents were asked to state their age and below are the responses.
Table 4.2.1 Age of Respondents
Cumulative
Frequency Percent Valid Percent Percent
Valid 20-30 18 67 67 67
30-40 9 33 33 33
40-50
41-50 100 100 100
51-Above

Total 27
Source Primary of data
Table 4.2.1 shows 67 percent of the respondents who work with Dara-salam Bank are within the
age group of 20-30 years followed by those in the age group of 30-40 years 33 percent This
means that the Dara-salam Bank is more interested in people with in the age group of 20-30
because these are still energetic and yearning to achieve a lot ahead. Management should recruit
fresh graduates from colleges and universities since that is the target age group of Dara-Salam.

4.2.2 Gender of the Respondent

Respondents were asked to state their gender and below are the responses.

26
Figure 4.2.2 Gender of respondents
Figure 4.2.2 shows that the Dara-Salam employs both the male and female employees though the
majority are male being represented by 89% while female are represented by 11%.only This
implies that Dara-Salam employees majority male although there is more difference of both
78% that indicates the Dara-salam Bank the staff employs are maturity male

4.2.3 Educational Level

Respondents were also asked to identify their educational levels and below are the responses and
below are the responses

Table 4.2.3 Educational Level

Cumulative
Frequency Percent Valid Percent Percent
Valid Secondary 0 0 0 0
Diploma 0 0 0 59
Bachelor 16 59 59 41
Post graduate 11 41 21 100
Total 27 100 100

Source: Primary data

Table 4.2.3 shows that 59 percent of the respondents who work with Dara-Salam Bank are
Bachelor graduates, while 41 percent of the respondents are Postgraduate. there is no more
difeferecnce of both 18%. This means that considers education and experience highly when
selecting its employees to ensure quality work.

4.2.4 Marital Status of the Respondent

Respondents were asked to state their marital status and below are the responses.

27
Figure 4.2.4 Marital Status of Respondents
Figure 4.2.4 shows that 59 percent of the respondents who work with Dara-Salam Bank are
Single while 37 percent of the respondents are Married and 4 percent are others. This means that
Employees who work with Dara-Salam Bank are maturity single

4.3 The Credit Management Practices

4.3.1 The Credit Risk Management Steps And Control Of Credit Risk
Employees of Dara-Salam were asked the credit risk management steps of identification,

measurement, assessment, monitoring and control of credit risk

Figure 4.3.1the credit risk management steps and control of credit risk
Figure 4.3.1,incate 63 percent of the respondents in agree with the statement while 37 percent
of them Totally agree with the statement. Going with the majority, of employee are agree that
means the credit risk management steps of Dara-Salam Bank are identification,
measurement ,assessment, monitoring and control of credit risk. that indicates credit risk
management tool Dara-salam Bank uses are identification ,measurement ,assessment, monitoring
to control of credit risk that is a result.

4.3.2 Efficient of Credit Risk Analysis Mechanism And Identify Potential Risks

Respondents were asked whether Dara-Salam use efficient of credit risk analysis

28
mechanism and identify potential risks and the following was obtained.

Table 4.3.2 Efficient of Credit Risk Analysis Mechanism And Identify Potential
Risks
Frequency Percent Valid Percent Cumulative Percent
Valid totally agree 9 33.3 33.3 33.3
agree 14 51.9 51.9 85.2
disagree 4 14.8 14.8 100.0
Total
27 100.0 100.0

Source: Primary data

From table 4.3.2 show 84% of the respondents totally agreed that the bank uses Efficient Credit
risk, analysis mechanism and identify potential risks where 11% the respondents disagree that
means efficient of credit risk analysis mechanism and identify potential risks

4.3.3 Adequate procedures and Control are credit risk management procedures
Respondents were asked adequate procedures and control are credit risk management procedures
and the following was obtained

29
Figure 4.3.3 adequate procedures and control are credit risk management procedures
Figure 4.3.3 show it can be noted that 44 percent of the respondents in agree that Adequate
procedures and control are credit risk management procedures while 41 percent in total disagree
and 15 percent are disagree that indicate Adequate procedures and controls are in control and are
employed in the credit risk management procedures
4.3.4 Reviews of procedures and controls of credit management
Respondents were asked 4 Reviews of procedures and controls of credit management are
periodically conducted by management and the following was obtained

Figure 4.3.4 Reviews of procedures and controls of credit management

Figure 4.3.4 show, 96 percent of the respondents in total agrees that there are reviews of
procedures and controls of credit management. However, 4 percent totally disagree with the
statement. That means there are reviews of procedures and controls of credit management

4.3.5 Regular reviews collection policies and improve state of credit management.
Respondents were asked to indicate whether in the Regular reviews done on collection policies
to improve state of credit management .and the following information was obtained.

Figu
re 4.3.5 Regular reviews on collection policies and improve state of credit management. The figure

30
4.3.5 indicates it can be noted that 93% of the respondent totally agreed that the Makes Regular
reviews done on collection policies to improve state of credit management.Where 8% disagree
with this statement the majority of respondents agreed of this statement that indicates the bank
Regular reviews done on collection policies to improve state of credit management.

4.3.6 Credit Management Practices And Credit Administration Unit And Top Management
Respondents were asked Credit Management Practices Are Violated By The Credit
Administration Unit and Top Management and the following was obtained

Table 4.3.6Credit Management Practices And Credit Administration Unit And Top
Management
Cumulative
Frequency Percent Valid Percent Percent
Valid Totally agree 3 11 11 52
Agree 11 41 41 7
Disagree 2 7 7 41
Totally disagree 11 41 41
Total 27 100
100 100
Source: Primary data
The above Table 4.3.6shows 52 percent totally disagree, while 48 percent of the respondent
agree This means that credit management practices are violated by the credit administration unit
and top management in the bank

4.4 Credit Management and Financial Performance

4.4.1 The Credit Management Policy creates a Common Set of Goals

Respondents were asked the credit management policy creates common set of goals and the
following was obtained

Table 4.4.1 The Credit Management Policy creates a Common Set of Goals
Cumulative
Frequency Percent Valid Percent Percent
Valid Totally agree 15 56 56 56
Agree 9 33 33 40
Disagree 2 7 7 4

31
 Totally disagree 1 4 4
Total 27 100 100 100

Source: Primary data

Table 4.4.1 above, 82 percent of the respondents totally agreed while 18 percent disagree that
means the credit management policy creates common set of goals for the bank
4.4.2 Credit Management Lower The Capital Locked and Reduces Retting Into Bad Debts

Figure 4.4.2 credit management lower the capital locked and reduces getting into bad debts
Figure 4.4.2 show, 89 percent of the respondents totally agreed while 11 percent disagree that
means the credit management lower the capital locked and reduces getting into bad debts

4.4. 3 Good Credit Management System Increased Profitability And Reduce Loan Defaults

32
Figure 4.4.3 good credit management system increased profitability and reduce loan defaults
Figure 4.4.3 show 89 percent of the respondents in totally agree with the statement while only 11
percent of them disagree with the statement the majority of the respondents agree the good
credit management increased the profitability of the bank and reduce loan defaults that means
credit management important the bank’s profitability

4.4.4 Lower Credit Exposure And Bad Debts Therefore Financial Health

The Respondents were asked lower credit exposure reduced chances of bad debts therefore

financial health and the following was obtained

Figure 4.4.4 lower credit exposure and bad debts therefore financial health

Figure 4.4.4 show 63 percent of the respondents in agree with the statement while 37 percent of
them disagree with the statement that means lower credit exposure reduced chances of bad debts
and therefore financial health.

4.4.5 customer credit application forms and credit management

The Respondents were asked to indicate The use of customer credit application forms improves
Monitoring and credit management as well increase possibility

Cumulative
Frequency Percent Valid Percent Percent
Valid Totally agree 4 15 15 82
Agree 18 67 67 7
Disagree 2 7 7 11
Totally disagree 3 11 11
Total 27 100 100 100

33
Source: Primary data
Table 4.4.5 show 82 percent of the respondents in agree with the statement while only 18
percent of them disagree with the statement that means The use of customer credit application
forms improves monitoring and credit management as well increase possibility

4.5 challenges of the credit management

4.5.1 As financial conditions change And the bank may likewise change
Respondents were asked to indicate whether in theAs financial conditions change, the credit risk
d by the bank may likewise change

Figure 4.5.1 As financial conditions change and the bank may likewise change
Figure 4.3.6 show that 96 percent of the respondents in totally agree that financial conditions
change, the credit risk d by the bank may likewise change while only 4 percent in disagree that
means financial conditions change the credit risk approaches employed by the bank may likewise
change

4.5.2Financial Managers Can Mitigate Much Of This Risk By Following Set Credit policy

The Respondents were asked whether Dara-Salam financial managers can mitigate much of this
risk by following a set credit policy and following data was obtained

Table4.5.2 Financial Managers Can Mitigate Much Of This Risk By Following A Set
Credit Policy
Cumulative
Frequency Percent Valid Percent Percent
Valid Totally agree 10 37 37 37
Agree 13 48 48 48
Disagree 0 0 0 0
Totally disagree 4 15 15 15

34
 Total 27 100 100 100

Source: Primary data

Table4.5.2 show that 85 percent of the respondents in agree while only 15 percent in totally
disagree that means financial managers can mitigate much of this risk by following a set credit
policy. that indicate financial managers can mitigate much of this risk by making sound and
prudent credit decisions (by following a set credit policy structure) and by securing credit
extensions to the fullest degree possible.
4.5.3 Financial Turbulence And High Failure Rates Can Make It Difficult To Manage
Credit
The Respondents were asked whether Dara-Salam financial managers can mitigate much of this
risk by following a set credit policy and following data was obtained

Figure 4.5.3 financial turbulence and high failure rates can make it difficult to manage
Figure 4.5.3 indicate 82 percent of the respondents in agree with the statement while only 18
percent of them disagree with the statement the majority of the respondents agreed financial
turbulence and high failure rates can make it difficult to manage credit that means financial
turbulence and high failure rates are challenge of credit management
4.5.4 Deteriorating Credit And Poor Financial Performance

The Respondents were asked deteriorating credit and poor financial performance and following
data was obtained

35
Figure 4.5.4 The Deteriorating credit quality and poor financial performance and condition
Figure 4.5.5 show 89 percent of the respondents in agree with the statement while only 11
percent of them disagree with the statement the majority of the respondents Deteriorating credit
quality is the most frequent cause of poor financial performance and condition.

4.5.5 The Delays On Collecting Cash From Debtors And Financial Problems,
The Respondents were asked The delays on collecting cash from debtors as they fall due has
serious financial problems, increased bad debts and affects customer relations. and following
data was obtained

Figure 4.5.5 The delays on collecting cash from debtors and financial problems,
Figure 4.5.6 show 86 percent of the respondents in agree with the statement while only 15
percent of them disagree with the statement the majority of the respondents agreed The delays
on collecting cash from debtors as they fall due has serious financial problems, increased bad
debts and affects customer relations.
4.5.6 Failure To Assess Customers Capacity To Repay Results In Loan Defaults
The Respondents were asked Failure to assess customers capacity to repay results in loan
defaults and following data was obtained

36
Figure 4.5.6 The Failure to assess customers capacity to repay results in loan defaults
Figure 4.5.7 indicate 89 percent of the respondents in agree with the statement while only 11
percent of them disagree with the statement the majority of the respondents agreed Failure to
assess customers capacity to repay results in loan defaults

4.5.7 Inefficient Data Management is Challenge In The Credit Management Process

The Respondents were asked Inefficient data management is challenge in the credit management
and following data was obtained

Figure 4.5.7 Inefficient data management is challenge in the credit management

Figure 4.5.8 indicate 93 percent of the respondents in agree with the statement while only 7
percent of them disagree with the statement the majority of the respondents agreed Inefficient
data management is challenge in the credit management process

37
4.5.8 The Bad loans Have An Impact And Financial Performance Of The Bank
The Respondents were asked The bad loans have an impact and financial performance of the
bank

Figure 4.5. 8The bad loans have an impact and financial performance of the bank
Figure 4.5.8 indicate 89 percent of the respondents in totally agree with the statement while only
21 percent of them disagree with the statement the majority of the respondents agreed The bad
loans have an impact and financial performance of the bank

CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS

5.1 Introduction
This chapter presents the discussion of key data findings, conclusion drawn from the findings
highlighted and recommendations. The conclusions and recommendations drawn were focused
on addressing the objective of the study. The researcher had intended to determine the effect of
credit management on the financial performance of Dara-Salam Bank in Hargeisa

5.2 Conclusion
5.2.1 Credit Management Practice
From the findings, the study found that credit management practice had effect on financial
performance. The study also established that there was strong relationship between Credit
management practice and financial performance of the Bank. because when the employee was
asked this statement 89% totally agree this idea. The study also found that Credit management
practice increase the profitability of the bank the study also revealed that a unit increase in credit

38
management practice would lead to increase in financial performance of this is an indication that
there was positive association between credit management and financial performance of bank.

5.2.2 Credit management and Financial performance

The study found out that the Credit management had effect on financial performance. The study
also established that there was strong relationship between Credit management and financial
performance of the Bank. because when the Respondents were asked this statement 93% totally
agree this idea. The study also found that Credit management increase the profitability and
reduce loan defaults The study revealed that a unit increase in credit management would lead
increase in financial performance of this is an indication that there was positive relationship
between credit management and financial performance of bank which shows that

5.2.3 Challenge of Credit Management

From the findings, the study found that credit management challenges had effect on financial
performance. The study also established that there was negative relationship between credit
management challenges and financial performance of the bank. Because when the respondents
were asked this statement 92% totally agree this idea. the study indicates the delays from cash
collection cause poor financial performance and increase bad debts of the bank. The study also
establish Inefficient data management is challenge in the credit management process.

5.3 Recommendations
The study recommends that banks should enhance their credit management practice by use of
customer credit application forms improves monitoring and credit management as well. The
study also recommends that there is need for banks to enhance their credit management
techniques so as to improve their financial performance. Through credit management
techniques the banks will be able to know credit worth clients and thus reduce their non-
performing loans. There is also need for banks to reduce challenges credit management and
enhance their credit risk control this will help in decreasing default levels as well as their non-
performing loans. This will help in improving their financial performance.

39
REFERENCES

⮚ abdilahi, A. (2009). challenges of microfinance on somaliland. hargeisa.

⮚ Abedi. (2000). credit mangement analysis on the bank.

⮚ adem, a. (2013). micro finance instituations in somaliland. hargeisa.

⮚ Asiedu-mante-e. (2011). Rural Banking in Ghana, Combert Impression, Accra .

⮚ brealey, m. a. (2003). ). Principles of Corporate Finance. . New York: : McGraw.

⮚ coyle. (2000). Coyle B, Corporate Credit Analysis, Credit Risk Management-Chartered

Institute of Bankers Financial.

⮚ Gaurav. (2010). Monitoring Accounts Receivable Using Variance Analysis; Financial

Management.

⮚ Gitman L.J. (1997). Principles of management finance (8th ed.).

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⮚ Hill. Kamath R., M. A. (2010). Accessing institutional finance: a demand side.

⮚ jaky, k. (2000). credit manageent practice on financial perforane MFIS. nairobi.

⮚ Mille. (2009). Measuring results of micro finance Institutions credit management. new

york.

⮚ Muturi, E (2016) Effect of Credit Management Practices on Loan Performance in Deposit

Taking Microfinance Banks in Kenya. International Journal of Innovations, Business and

Management (IJIBM).10, (1).

⮚ Moti. O. (2012) Effectiveness of Credit Management System on Loan Performance:

Empirical Evidence from Micro Finance Sector in Kenya. International Journal of

Business, Humanities and Technology 2 (6), October 2012.

⮚ Mix Market (2011) Country briefing [ online] http://www.mixmarket.org/mfi/country

Myers,

⮚ nelson. (2002). ). Solving Credit Problem. [On-line]. Available http://www.cfo.com.

⮚ puri, p. a. (2013). The Impact of the Financial Crisis on Bank Lending to SMEs;

Econometric Analysis from .

⮚ wachowiz, h. a. (1998). ). Fundamentals of Financial Management.

⮚ (http://www.smallbusiness.wa.gov.au/assets/Small)-Business-Briefs/small-business-brief-

credit-management.pdf. (2011). effect credit management on financial performance in

banks.

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 ⮚ Rouse 2002, Bankers‟ Lending Techniques, Global Professional & Publishing

⮚ Scheufler, B. (2002a). Five Risks You Can Target with Best Practices. [On-line]. Avail

⮚ Pandey, I. M. (2008),” Financial Management .” Vikas Publishing House (PVT) Ltd,

New Delhiable http://www.dnb.com (19/05/13)

APPENDIX A: QUESTIONNAIRE

Dear Respondents,

I am carrying out this study to graduate from the university. The study that I am going to
investigate is “The impact of credit management on financial performance as your opinion in

42
this study, may I request to answer this questionnaire. I will appreciate you if you give more
consideration to the questions and return as soon as possible.

Please be note the data you provide to me, it is only academic purpose and I will promise you
that I will not use another purpose. Furthermore, the information you provide to me will treated
in confidentiality.

I am extremely appreciate you the time you provide to me to fill this questionnaire.

Thank you very much indeed

Yours truly,

SamiyaAbdilahi Ali

B.A Candidate in Accounting and finance

Civil service Institute, Hargeisa Somaliland

SECTION A: PROFILE OF RESPONDENT

Direction: Kindly tick the appropriate space or provide the data requested where appropriate.

1. Age of the Respondent

20-30 31-40 41-50 51- Above

43
2. Gender: Male ( ) Female ( )

3. Educational level: Secondary ( ) Diploma ( ) Bachelor ( ) Post graduate ( )

4. Marital Status Single ( ) Married ( ) Others ( )

SECTION B: FISCAL DECENTRALIZATION

Please select the number one to four in the below keywords to mention your selection. Number
Four (4) indicates totally disagree, (3) number three indicates disagree; (2) number two indicates
agree and finally, (1) number one indicates totally agree. Please be note, it is very important to
give consideration to your selection

4. Totally disagree 3. Disagree 2. Agree 1. Totally Agree

● Specific Objective One: To investigate the credit management Practices

Scale 4 3 2 1

● The bank employs credit risk management steps of identification,

measurement,assessment, monitoring and control

● The bank has got in place an efficient credit risk identification and
analysis mechanism and identify potential risks

44
● Risk inherent in new products are subjected to adequate analysis
before being introduced to the market

● Adequate procedures and controls are in control and are employed

in the credit risk management procedures

● Reviews and enhancements of procedures and controls of credit

risk are periodically conducted by management

● Reviews and enhancements of procedures and controls of credit

risk are periodically conducted by management

● As financial conditions change, the credit risk approaches

employed by the bank may likewise change

● Instances occur where credit risk practices are violated by the

credit administration unit and or top management resulting to non-
performing loans in the bank

Specific Objective Two To examine the influence of credit management on financial

performance
Scale 4 3 2 1

● The credit management policy creates a common set of goals for

45
 the Bank and recognizes the credit and collection department as
an important contributor to the banks strategies.

● The financial management involving credit analysis, credit rating,

credit classification and credit reporting.

● If thecredit management lower the capital is locked with the

debtors, and also reduces the possibility of getting into bad debts

● Good credit management systems result into increased

profitability due to reduced loan defaults.

● The In contrast, lower credit exposure means an optimal debtors‟

level with reduced chances of bad debts and therefore financial

health

● Specific Objective Three : To Determine the challenges of the credit management

Scale 4 3 2 1

● As financial conditions change, the credit risk approaches employed

by the bank may likewise change

46
 ● Wise financial managers can mitigate much of this risk by making

sound and prudent credit decisions (by following a set credit policy
structure) and by securing credit extensions to the fullest degree
possible.

● financial turbulence and high failure rates can conspire to make it

difficult to manage credit

● Inefficient data management is challenge in the credit management

process

● Deteriorating credit quality is the most frequent cause of poor

financial performance and condition.

● The delays on collecting cash from debtors as they fall due has

serious financial problems, increased bad debts and affects customer

relations.

APPENDIX B: INTERVIEW

1 Does a credit department employee have experience of credit management?

2. Is there a policy on rescheduling loans that has been implemented by the Top managers?

47
3. Does anyone outside the credit department have the authority to override decision of the
credit department ?

*Thank you indeed for your Cooperation*

48