Loan management strategies: A lever for loan delinquency reduction in the microfinance sector of Bamenda, Cameroon

Abstract

Loan delinquency is a pressing issue for microfinance institutions (MFIs) in Bamenda, many of which struggle to meet the 5% maximum rate set by ANEMCAM, leading to financial instability and a decline in client trust. This study assessed the impact of various loan management strategies, including loan appraisal, loan monitoring, and loan recovery, on loan delinquency rates among a sample of 69 MFIs, achieving a response rate of 85.5% with 59 valid responses. Multiple regression analysis revealed that loan appraisal has a significant negative effect on delinquency, with a coefficient of -0.243 and a significance level of 1%, underscoring the importance of effective borrower evaluations in reducing delinquency risks. In contrast, loan monitoring showed a positive and significant effect, with a coefficient of 0.828 and a significance level of 1%, indicating inefficiencies in current practices that may exacerbate delinquency. Meanwhile, loan recovery demonstrated a negative effect, with a coefficient of 0.036, but the findings were not significant. Based on these findings, the study recommends that MFIs enhance their loan appraisal processes, provide training to loan officers on risk assessment, and utilise advanced data analytics for improved monitoring and recovery. Additionally, maintaining open communication with borrowers is vital for proactively addressing repayment challenges and fostering positive relationships, ultimately aiming to reduce loan delinquency rates within the sector.