Evaluating the Effect of Credit Collection Policy on Portfolio Quality of Micro-Finance Bank

TL;DR

This paper investigates how the debt collection policy impacts the portfolio quality of microfinance banks in Nigeria, emphasizing that stricter policies lead to better loan recovery and improved financial health.

Contribution

It provides empirical evidence on the positive effect of collection policy strictness on microfinance bank portfolio quality in Nigeria.

Findings

Stricter collection policies improve loan recovery rates.

Collection policy significantly affects portfolio quality.

Microfinance banks should adopt strict debt collection practices.

Abstract

This study evaluates the effect of collection policy on portfolio quality of microfinance banks in Adamawa State, Nigeria. Real data were collected from 51 credit officers, then a multi-stage sampling method was used to select a sample of 21 respondents from the population (i.e., 51 credit officers). In addition, we used regression analysis and descriptive statistics to analyze the data collected and to also test our proposed hypothesis. Based on the evaluation performed, the results showed that collection policy has a higher effect on portfolio quality. Hence, the study showed that microfinance banks should adhere to strict or stiff debt collection policy as strictness in collection policy help the banks to recover their loans, thereby improving the portfolio quality of the bank.