Examining Credit Screening Criteria’s: Evidence from Five Selected Microfinance Institutions in South West Ethiopia, Oromiya Region, Jimma Town

Abstract

The ability of MFI's to formulate and adhere to policies and a procedure that promotes credit quality and curtails non-performing loans is the means to survive in the stiff competition. Inability to create and build up quality loans and creditworthy customers lead to default risk and bankruptcy as well as hampers economic growth of a country. This study of credit screening– A Case Study on Microfinance Institution in South West Ethiopia, Jimma Town is an attempt to indicate the criteria that MFI’s should take in credit screening. Thus, the rationale behind for undertaking this study is to deeply examine and screen the credit criteria and to suggest the possible solutions that enable the MFI’s to run its operation most safely as credit is known to be the mainstay of all MFI. For the study, both primary and secondary data were used. Primary data was collected using structured questionnaires and in-depth- interview and Qualitative approach were adopted. Hence, the nature of the study is descriptive and it is related to qualitative analysis method. The census or total universe inquiry method was applied since the study is the easily manageable and the total number of population in the MFI was less than 30. Finally, based on the findings possible recommendations were given. These include the issues impeding loan growth and rising loan clients complaint on the MFI regarding the valuing of feature offered for collateral, lengthy of loan processing, amount of loan processed and approved, loan period as well as the amount, and discretionary limits are currently affecting the performance of credit screening and management.