EFFECT OF MOBILE-BASED LENDING PROCESS ON NON-PERFORMING LOANS IN COMMERCIAL BANKS IN NAKURU TOWN, KENYA

Abstract

Lending is one of the most important functions of commercial banks. Yet, lending is at times associated with non-performing loans. Non-performing loans (NPLs) are a monumental challenge to the banking sector. The ratio of commercial bank NPLs to total gross loans was 5.989% in 2015 in Kenya. This study sought to determine the effect of mobile-based lending process on non-performing loans in commercial banks in Nakuru town. Precisely, the study assessed how loan appraisal process, documentation process, loan disbursement process, and monitoring and evaluation process affected NPLs in commercial banks. The study adopted a descriptive survey research design. The credit officers working with commercial banks in Kenya constituted the target population. The 172 credit officers working with 37 branches of commercial banks in Nakuru town when the study was done, comprised the accessible population. A sample of 64 credit officers was obtained from the study population using stratified random sampling method. A structured questionnaire was used to collect data from the sampled respondents. A pilot study was carried out prior to the main study with the aim of determining both the reliability and validity of the research instrument. The researcher obtained requisite permits and consents before collecting data. The Statistical Package for Social Sciences Version 24 software was used to facilitate data analysis. Descriptive statistics and inferential statistics were used in the analysis. Descriptive statistics encompassed frequencies, percentages, means and standard deviations. Inferential statistics took the form of Spearman rank correlation coefficient and multiple regression. The results of the analyses were presented in tables. The hypotheses were tested at 95% confidence level. The study observed that loan appraisal process was the most important element of mobile-based loans in respect of NPLs. On the other hand, loan disbursement process was found to be of marginal consequence on NPLs. The first (t = 3.612; p < 0.05) and second null hypotheses (t = -3.278; p < 0.05) were rejected while the third (t = 0.096; p > 0.05) and the fourth (t = 0.027; p > 0.05) failed to be rejected. The study also found that, the more commercial banks emphasized on lending through the mobile platform, the more they were likely to record NPLs.It was also concluded that the loan appraisal process had a significant relationship with NPLs.Conclusively, commercial banks risked to incur more NPLs for failing to get the necessary documentation of the borrowers. The study concluded that that the processes of disbursing loans, and monitoring and evaluation were largely inconsequential to NPLs in commercial banks. The study recommends that commercial banks should have a comprehensive process of appraising loans advanced via mobile platform in order to enhance the mechanisms of assessing creditworthiness of prospective borrowers. The study recommends that mobile-based loans should not be exempted from documentation rigours involved in loan application process. The study recommends that mobile-based loans should be disbursed via mobile phone only after authenticating the details of the applicants. The study further recommends that the mobile-based loans should be closely monitored and evaluated in order to ensure that repayment is in tandem with contractual agreement.