INFLUENCE OF CREDIT RISK MANAGEMENT PRACTICES ON FINANCIAL PERFORMANCE: A CASE OF SMALL AND MEDIUM ENTERPRISES IN KISII TOWN, KENYA

Abstract

Credit given to customers can enhance the business to influence high demand of the products. Enterprises can benefit from giving credit when profit generated is increased from sales. Credit risk is the danger which arises when customer request to make payment as per agreed period but in the process may fail to pay. Credit risk management is that process used to ensure customer pays for a product delivered. In small and medium Enterprise credit risk management is that ability to manage customer's credit line to minimize loss, bad debts, bankruptcy over reserving in payment pattern. The objective of the study was to examine the effects of credit risks management practice on financial performance. Specific objectives include; to investigate the effects of product diversifications on financial performance of small and enterprise in Kisii town, and to determine the effect of market risk on financial performance of small and medium enterprises in Kisii town. The conceptual framework was conceptualized by independent variable and dependent variable. The study used cross-sectional design. The cross-section design is the method of collecting information from different samples from large population. Self-administering research questionnaire was ensured by the researcher. The target population consisted of 857 respondents. Stratified sampling was used. The sample of 86 respondents was used by applying 10% of the target population. Stratified sampling technique was used to categorize SMEs in Kisii town under study to give chance for every enterprise to participate. Managers, account clerk and owners provided information required by filling the questionnaire for primary data. The study analyzed the collected data by descriptive statistics such as percentage, mean and standard deviation. Inferential statistics such as correlation and regression analysis examine the association between variables. The study findings were presented by tables then discussions and conclusion was drawn. From the results, it was indicated that usage of product diversification led to appropriate management, product diversification considers quality of client looking for credit facilities while borrowed amount was convenient to the business and flexible products usage improves credit management. It is recommended that product diversification should be considered with quality of client is looking for credit facilities through variety of products.