Impact of Credit Risk Management on the Financial Performance of Microfinance Institutions in Nigeria: A Qualitative Review

Abstract

This study reviewed the effect of credit risk management on the financial performance of microfinance institutions (MFIs) in Nigeria. Utilizing a qualitative review methodology, the review found that proactive risk assessment, thorough credit appraisal, proper loan monitoring, and prompt loan recovery procedures are essential components of efficient credit risk management, which has a substantial impact on MFI performance. Credit risk management is also improved by well-defined regulations, qualified personnel, and suitable technology infrastructure. The study cites difficulties MFIs confront, including restricted access to credit information, insufficient regulatory frameworks, and operational limitations. By addressing these issues, financial performance and sustainability can be increased. Enhancing credit information sharing systems, encouraging stakeholder cooperation, and offering capacity-building initiatives are some recommendations. This study offers insightful information that can help practitioners, regulators, and policymakers create a climate that supports efficient credit risk management while boosting financial performance and promoting Nigeria's long-term growth.