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ISBN 13 :
Total Pages : 59 pages
Book Rating : 4.:/5 (928 download)
Book Synopsis Behavioral Factors Associated with Default Rates for Loans to Small and Medium Enterprises (SMEs) in Kenya [EMOD Thesis a Ccompanied by a CD-ROM] by :
Download or read book Behavioral Factors Associated with Default Rates for Loans to Small and Medium Enterprises (SMEs) in Kenya [EMOD Thesis a Ccompanied by a CD-ROM] written by and published by . This book was released on 2014 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: The general objective of this study was to determine the behavioral factors associated with high default rates in lending to the Small and Medium Enterprises (SMEs) sector in Kenya. The specific objectives of the study were to analyze factors directly associated with high default rates in lending to SME sector in Kenya, to determine behavioral factors Banks and Financial Institutions (FIs) can use to predict probability of default of lending to SMEs in Kenya and to evaluate the behavioral parameters for scoring credit applications for SMEs lending in Kenya. The study adopted a descriptive research design aimed at determining the behavioral factors associated with high default rates in lending to SMEs in Kenya. The descriptive research design was used because it enabled the researcher apply the general findings to a large population. The findings describe the characteristics that exist among different variables common to SME businesses that can explain the behavioral factors that could help predict probability of default. The population for the study comprised records of fifteen thousand (15,000) SME customers who had active credit facilities and had serviced the loans for at least twelve months since disbursement. From the sampling frame of fifteen thousand records, the researcher used a sample of ten thousand five hundred (10,500) SME customers equal to seventy percent (70%) as the development sample and the remaining thirty percent (30%) was used as the validating sample. Quantitative data analysis involved using the Statistical Package for Social Scientists (SPSS) application to generate distributions through tabulations, percentages, means and other measures of central tendencies. Microsoft Excel application was used to prepare presentation and analysis diagrams, pie charts, graphs and calculation of distributions. The study finally drew findings from the appropriate conclusions. The study found out that the loan tenor or months to maturity and interest rate type ? either variable or fixed rate were major determinants of the default rate among SME customers. The study also determined that the account conduct of SME business owners, years of business operation and business experience affected the servicing of loans hence contributed to high default rates. The study further determined the main behavioral parameters that could be used to score SME customers involved the general management of loan and other accounts held by the SME customers. These included management of account overdrawn positions, bounced cheques, returned standing orders and management of credit transactions. The study concluded that the factors affecting the default rate in lending to SMEs in Kenya include application variables that indicate the repayment ability of a customer. They include customer specific information, product information and financial indicators. The study further concluded that behavioral factors Banks and Financial Institutions can use to predict probability of default in lending to SMEs include variables that indicate how well a customer services the loan facilities after disbursement. These factors include accounts and product management, interval measures and the relationship with the lender. Finally the study concluded by identifying and evaluating behavioral parameters that can be used to develop behavioral score cards for SME in Kenya. These parameters need to be internally determined based on the existing customers? data and they largely relate to management of accounts and interval measures by SME customers. The study recommends that Banks and Financial Institutions should employ application factors and parameters as the basis for evaluating new customer loan applications which should form a basis for behavioral scoring for existing customers in order to predict default probability post disbursement. Further the study recommends that management of banks and financial institutions should take keen interest on the borrower?s business experience, management of other accounts the customer operates and how customers manage their loan facilities to determine the behavioral factors that can predict borrower-behavior and hence the possibility of default occurring. These borrower behaviors attributable to management of accounts act as predictors of likelihood of default. Finally the study recommends use of behavioral scorecards that analyze quantitative factors that can determine whether to approve additional credit facilities for already existing customers and future research is recommended on all commercial Banks in Kenya to determine additional parameters that can be applied industry-wide for behavioral credit scoring.
