The effect of credit reference bureau service on financial performance of deposit taking micro finance institutions in Kenya

The research investigate the effect of credit reference bureau service on financial performance of deposit taking microfinance institutions in Kenya. A credit reference Bureau is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. It is an organization providing detailed information on person’s credit history, including information on their identity, credit accounts and loans, bankruptcies and late payments and recent inquiries. The study reviews literature on financial performance and credit reference bureau and theoretical framework which consists of theories of financial performance in relation to credit reference bureau. This study employed descriptive design that aims at establishing the effect of credit reference bureaus on the on financial performance of Deposit taking microfinance institutions in Kenya. Target population was 9 deposit microfinance institutions registered by the Central Bank of Kenya at 8th April 2013. The study used secondary data available from the financial statements of the target population. The annual report and accounts for the last five years from 2009 – 2013 and other available from the relevant sources. The study used event analysis to show return on assets on pre and post CRB implementation in 2009 which were presented on a graph and table for a period of 2 years before and 5 years after. The study employed linear regression model equation (2) to test Return on Assets and total number of defaulters at the CRBs per year. The study found strong credit information sharing is therefore essential not only to individual prosperity, but also to a country’s overall economic growth. The study established that financial performance is rated with credit information sharing with the latter causing the former. The study also recommends that an open system needs to be enhanced to allow financial institutions as well as non-bank entities retailers, telecom and utility companies access to credit history of borrowers so as to know which clients to serve and what differential price to charge to cover risks