Abstract:
When a financial institution is evaluating a request for credit, it can either collect information from the applicant first hand or source this information from other lenders who have already dealt with the applicant. Credit information sharing helps to avoid excess lending, issuing bad loans, enhancing access of funds to good loan payers and reducing non-performing loans. As at the end of September 2012 the number of credit reports requested by institutions stood at 2,036,634 in September 2012 up from 1,774,185 reports in June 2012, representing an increase of 14.8 percent or 262,449 reports. Over the same period, non-performing loans increased by 16.8 percent. The general objective of this study was to examine the effect of shared entrepreneurs’ credit information on the performance of deposit taking microfinance institutions in Kenya. The study covered a period when only negative credit information was being shared. The specific objectives of this study were to determine the effect of demographic information, repayment history, current borrower`s loans and character information on the performance of deposit taking microfinance institutions in Kenya. The theories that guided this study were; social exchange theory, economic entrepreneurship theory, sociological entrepreneurship theory, Hayekian theory, financial capital theory and the life-cycle theory. The study adopted both explanatory and descriptive research designs. The population of study was comprised of all 54 credit managers of the deposit taking microfinance institutions from which a census was carried out hence no sampling was done. Primary data was collected using a semi-structured questionnaire. Drop and pick method was used to administer the questionnaire. Secondary data was obtained from Central Bank of Kenya. The test for normality confirmed that data employed in analysis was normally distributed. The reliability test showed that all the study variables were reliable thus suitable for further analysis. Descriptive statistics and regression analyses were used to analyze data. Data is presented in the form of charts, tables and figures. The study established that demographic information and character information do not have a significant relationship with the performance while repayment history and current borrower’s loans have a significant statistical relationship with performance of deposit taking microfinance institutions in Kenya. The study recommended the need for the government and all the stakeholders to intensify awareness campaigns about the growing need to share credit information, need to broaden the source of information by including utility companies like Kenya power, water companies, land rates collectors among others so as to enrich the available information on prospective borrowers and finally the implementation of favorable monetary policies that will result to cheap credit. This initiative will help in reducing cases of non-repayment of loans.