EFFECTS OF CREDIT REFERENCE BUREAU PROCEDURES ON PERFORMANCE OF LOAN PORTFOLIO: A CASE OF SELECTED COMMERCIAL BANKS IN TANZANIA

Authors

  • Kembo M. BWANA College of Business Education, Dodoma
  • Baleke MOSES College of Business Education, Dodoma

DOI:

https://doi.org/10.35774/jee2024.03.442

Keywords:

banks, credit reference bureau, loan portfolio.

Abstract

This study investigates the impact of credit reference bureau (CRB) procedures on the performance of loan portfolios at selected commercial banks in Tanzania. A cross-sectional research design was adopted, with data collected through questionnaires and interviews involving 95 respondents from selected commercial banks. The findings show that the procedure to accessing loans had a positive and significant relationship with loan portfolio performance at these banks (β = 0.835, p = 0.000), as did loan approval procedures (β = 0.789, p = 0.001) and quality control procedures (β = 0.768; p = 0.002). All were significant at 5% level. The study concludes that using credit reference bureau services allows banks and other credit providers to assess potential clients, track their financial performance, and manage any accumulated debts. The study recommends that the government of Tanzania work closely with listed commercial banks and other financial institutions to ensure compliance with legal requirements specifically policies and procedures that assist in screening and monitoring clients from the initial stage of lending by using credit reference bureau procedures to improve decisions on loan provision.

JEL: G21, D82, O55.

Author Biographies

Kembo M. BWANA, College of Business Education, Dodoma

PhD, Senior Lecturer of Finance, Accountancy Department

Baleke MOSES, College of Business Education, Dodoma

Researcher, Accountancy Department

References

Allen, F., & Santomero, A. (1997). The theory of financial intermediation. Journal of Banking & Finance, 21(11-12), 1461-1485. https://doi.org/10.1016/S0378- 4266(97)00032-0

Alloyo, P. (2013). The effect of credit reference bureaus on the financial performance of commercial banks in Kenya [Thesis for the degree of Master of Business Administration]. University of Nairobi Research Archive. http://erepository.uonbi.ac.ke/handle/11295/60716

Beck, C. (2007). A communications model for knowledge sharing. In A. F. Salam & J. Stevens (Eds.), Semantic web technologies and e-business: Toward the integrated virtual organization and business process automation (pp. 237- 254). IGI Global. https://doi.org/10.4018/978-1-59904-192-6.ch010

Bester, H. (1985). Screening vs. rationing in credit markets with imperfect information. American Economic Review, 75(4), 850-855.

Chandler, G. G., & Coffman, J. Y. (1979). A comparative analysis of empirical vs. judgmental credit evaluation. The Journal of Retail Banking, 1(2), 15-26.

Conning, J., & Udry, C. (2007). Rural financial markets in developing countries. In R. Evenson & P.Pingali (Eds.), Handbook of agricultural economics (Vol. 3, pp. 2857-2908). https://doi.org/10.1016/S1574-0072(06)03056-8

de Meza, D., & Webb, D. C. (1987). Too much investment: A problem of asymmetric information. The Quarterly Journal of Economics, 102(2), 281-292.

Diamond, D., & Rajan, R. (2001). Liquidity risk, liquidity creation, and financial fragility: A theory of banking. Journal of Political Economy, 109(2), 287-327. http://doi.org/10.1086/319552

Ernst & Young. (2021). Tanzania banking sector overview: A review of the 2020

calendar year. https://www.ey.com/content/dam/ey-unified-site/ey-com/entz/documents/ey-tanzania-banking-sector-report1.pdf

Freixas, X., & Rochet, J.-C. (1999). Microeconomics of banking. The MIT Press.

Freimer, M., & Gordon, M. J. (1965). Why bankers ration credit. The Quarterly Journal of Economics, 79(3), 397-416.

Gaitho, N. W. (2013). Role of credit reference bureaus on credit access in Kenya: A survey of commercial banks in Kenya. European Scientific Journal, 9(13).

Gitahi, R. W. (2013). The effect of credit reference bureaus on the level of nonperforming loans in the commercial banks in Kenya [Thesis for the degree of Master of Business Administration]. University of Nairobi Digital Archive. http://erepository.uonbi.ac.ke/bitstream/handle/11295/58832/The%20effect% 20of%20credit%20reference%20bureaus%20on%20the%20level%20of%20 non%20performing%20loans%20in%20the%20commercial%20banks%20in %20Kenya.pdf?sequence=3

Kago, E. W. (2014). The effect of credit reference bureau service on financial performance of deposit taking microfinance institutions in Kenya. [Thesis for the degree of Master in Business Administration]. University of Nairobi Research Archive. http://erepository.uonbi.ac.ke/handle/11295/75681deposit%20taking %20microfinance%20institutions%20in%20kenya.pdf?isAllowed=y&sequence=3

Kasanda, P., Marandu, M., & Hettich, T. (2013, April). Progress to establishment of Tanzania’s Credit Reference System. Clyde&Co LLP. https://www.clydeco.com/clyde /media/fileslibrary/Publications/2013/ Banking _Regulatory_Update_-_CRBs.PDF

Kimani, M. W. (2015). Credit reference bureau strategy and loan performance at the commercial bank of Africa in Kenya [Thesis]. University of Nairobi Research Archive. http://erepository.uonbi.ac.ke/handle/11295/93695

Murimi, I. N. (2017). The effectiveness of Credit Reference Bureau (CRB) on the provision of credit by commercial banks in Kenya [Thesis for the degree of Master of Business Administration]. Chandaria School of Business. United States International University–Africa Digital Repository. https://erepo.usiu.ac.ke/handle/ 11732/3395;jsessionid=E3A77069B0F4230270D6D3A2DE2C6060

Namara, E. (2011). The role of financial institutions in savings mobilization: The case of Pride Microfinance Uganda Ltd. Makerere University.

Navajas, S., Conning, J., & Gonzalez‐Vega, C. (2003). Lending technologies, competition and consolidation in the market for microfinance in Bolivia. Journal of International Development, 15(6), 747-770. https://doi.org/10.1002/ jid.1024

Ng’ang’a, M. (2015). The effect of credit reference bureaus information sharing on nonperforming loans in commercial banks [Thesis for the degree of Master of Science]. University of Nairobi Research Archive http://erepository.uonbi.ac.ke/ handle/11295/93950

Kaugi, S. (2020). The Relationship between Credit Reference Bureau Services and Financial Performance of the Commercial Banks in Kenya: A Survey of Commercial Banks in Meru County (Doctoral dissertation, KeMU).

Osoro, K. M., Nyolei, J., Rotich, I. C., & Odhiambo, L. (2015). Credit Reference Bureau (CRB) as a strategic control measure and its influence on the financial performance of commercial banks in Eldoret, Kenya. IOSR Journal of Humanities and Social Science (IOSR-JHSS), 20(5), 44-64.

O’Sullivan, A., & Sheffrin, S. M. (2003). Economics: Principles in action. Pearson Prentice Hall.

Saunders, M., Lewis, P., & Thornhill, A. (2009). Research methods for business students. Printhall.

Shisia, A., Marangu, W. N., & Omwario, B. (2014). An assessment of the contribution of Credit Reference Bureau Regulation towards mitigating credit risks in the Kenya’s banking industry. European Journal of Business and Management, 6(14), 229-235. https://iiste.org/Journals/index.php/EJBM/article/view/ 13352/13214

Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. American Economic Review, 71(3), 393-410. https://pages.ucsd.edu/ ~aronatas/project/academic/Stiglitz%20credit.pdf

Tumusiime-Mutebile, E. (2011). Introducing innovative services to meet credit needs in Uganda [Speech]. BIS Central Bankers’ Speeches. http://www.bis.org/ review/r081205c.pdf

Received: July 1, 2024.

Reviewed: July 15, 2024.

Accepted: August 27, 2024.

Downloads

Published

01.09.2024

How to Cite

BWANA, Kembo M., and Baleke MOSES. “EFFECTS OF CREDIT REFERENCE BUREAU PROCEDURES ON PERFORMANCE OF LOAN PORTFOLIO: A CASE OF SELECTED COMMERCIAL BANKS IN TANZANIA”. Journal of European Economy, vol. 23, no. 3, Sept. 2024, pp. 442-54, doi:10.35774/jee2024.03.442.

Issue

Section

Development of Financial Relations