ABSTRACT

The general objective of this study was to investigate the effect of debt recovery strategies on loan performance of companies in buea. The objectives guiding the study include; to determine the effect of fines on loan performance in companies in buea., to determine the effect of adverse credit listing on loan performance in companies in buea. and to determine the effect of loan limit reduction on loan performance in companies in buea..

This study used descriptive survey design approach to incorporate various elements of the study. A population of 121 managers was used to determine a sample size of 92 respondents. This study was based on descriptive research design. This study made use of stratified sampling tactic. In order to collect primary data from the respondents, a questionnaire was used for data collection. Descriptive statistics were instrumental in analyzing percentages and frequencies and inferential statistics deployed for analyzing correlation and regression analysis. SPSS software version 24 was used to perform the analysis of the data obtained from the respondents and findings highlighted in tables and figures.

The findings showed that there was a positive and significant relationship between fines and loan performance, r (0.820); p-value < 0.01. The findings also showed that 66.8% variation in loan performance is attributed to fines. This implied that the use of loan penalties enhance prompt payments which plays a bigger role in reducing the rate of defaulting from customers.

In determining the effect of adverse credit listing on loan performance in fintech companies in Kenya, the findings revealed a significant relationship between adverse credit listing and loan performance, r (0.773); p-value < 0.01. The findings revealed that 59.2% variation in loan performance is attributed to adverse credit listing. This implied that credit information sharing enabled digital lenders in addressing the issue of credit rationing. Adverse credit listing influenced debt collection process.

The study results showed that there existed a significant and positive relationship between loan limit reduction and loan performance, r (0.633); p-value < 0.01. The results also showed that 39.2% variation in loan performance is attributed to loan limit reduction.

Loan limit reduction enhanced compliance among customers which was essential for revenues as well as profitability for digital lenders.

This study concluded that the use of fines was an effective way to discourage borrowers from delaying payments or defaulting. Placing penalties on late payments often reduced repayment rates and this could be because penalties make current debts expensive to pay and especially if incurred continuously.

Credit information sharing enables digital lenders in addressing the issue of credit rationing. Collection of information by credit reference bureaus enhanced the precision of the signal about the quality of the credit seeker in the organization. The adverse credit histories which are often highlighted in an individual’s credit report can make it difficult for a person to access credit based on their credit scoring.

Credit monitoring was an essential measure which ensured that financial institutions understand the current financial state of the borrower or counterparty, guarantee that all acknowledge are in consistence for the current pledge, follow the utilization of client make of endorsed credit lines, guarantee that anticipated incomes on significant credits meet obligation overhauling necessities.

This study recommended that digital lenders in companies in buea should impose penalties on late payments to the borrowers. This will enable the firms to meet their profitability as well as sales targets which are essential for business sustainability. Digital lenders should also formulate loan policies to enhance lending by binding lenders and the borrowers to adhere to the agreement in place. Adverse credit listing approach should be used by digital lenders to ensure compliance from borrowers in repaying their loans in a given duration of time while at the same time adhering to the credit commitments. Adverse credit listing history will also allow digital lenders to track a record of delinquent debt, late bill payment, large amounts owed and the presence of bankruptcy of borrowers in the organization. In order to enforce compliance among borrowers digital lenders should constantly have a loan limit reduction policy.