DEBT RESCHEDULING, A NECESSARY STRATEGY IN MANAGEMENT OF NON-PERFORMING LOANS: INSIGHTS FROM MICROFINANCE INSTITUTIONS IN NAIROBI CITY COUNTY

The purpose of this study was to determine the influence of debt rescheduling on the level of nonperforming loans in MFIs in Nairobi County. Explanatory research design was adopted with the population of study comprising of all 57 MFIs in Nairobi County under umbrella body AMFI. Both primary and secondary data was collected. Primary data was collected with the help of a semi structured questionnaire while secondary data covering a period of five years from 2014-2018 was collected from AMFI published annual supervisory reports and MFIs final financial statements using a data collection sheet. Data was analysed using descriptive statistics (mean and standard deviation), correlation analysis, as well as linier regression analysis. The SPSS software was used to analyse the data. Results indicated that non-performing loans and debt rescheduling in the MFIs are strongly and negatively correlated (r=-0.682).Debt rescheduling had a statistical significant influence on NPLs (adjusted R2=0.652; F=96.550>4.0343; β=-0.355; P-value=0.008<0.05). Based on these results, the study concluded that debt rescheduling was significant in predicting the level of NPLs in MFIs in Nairobi County. Therefore, the study recommends that MFIs should carefully evaluate possibility of rescheduling repayment periods for struggling borrowers. The study contributes to the body of knowledge by proposing a management model for MFIs in managing their NPLs. The study also contributes theoretically by validating the applicability of the theoretical anchorage of creditor's bargain theory which had been applied in other contexts but was significantly absent in microfinance institutions. Empirically, the study contributes by showing the relationship that exist between the study variables among microfinance institutions in Nairobi City County, a gap identified in previous scholarship. Future studies should be carried out on other debt restructuring strategies other than debt rescheduling to determine whether they have a significant influence on the level of NPLs in MFIs in Kenya.