DEBT COLLECTION STRATEGIES AND FINANCIAL PERFORMANCE INMICROFINANCE BANKS

Abstract

Debt collection strategies involve developing a strong collection unit with clearly defined, documented and consistent policies and procedures that guide staff through the collections process and instruct them on how to respond in particular situations. For an effective debt collection strategy, a firm should have an effective and documented debt collection plan since such a firm with an elaborate plan of collecting its rates and levies will be able to implement the plan more easily that one which does not have such a debt collection plan. The purpose of the study was to make an evaluation of debt collection strategies on the financial performance of microfinance banks. The paper concluded that debt collection strategies that are employed by the MFB are, subcontracting of debt collection to third party agents that work on commission and this is also supplemented by use of internal debt collection unit in the MFB, adoption of both enforcement and proactive debt collection strategies. The paper also examines that MFB have a role to play by seconding experts to these debtors that will guide them on the debt recovery exercise