Assessment of Credit Risk Management Practices in Microfinance Banks in Kano State

Credit risk management is a critical determinant of the financial stability and sustainability of microfinance banks serving low-income populations across North West Nigeria. This study assesses the credit risk management practices of microfinance banks in Kano State, examining how loan appraisal procedures, collateral requirements, loan monitoring, and portfolio diversification influence non-performing loan ratios. A descriptive research design was adopted, and primary data were obtained from 180 credit officers and branch managers across 15 microfinance banks in Kano Municipal, Nassarawa, and Tarauni Local Government Areas. A structured questionnaire and interview guide were used as data collection instruments. Data were analysed using frequency tables, percentages, and Pearson correlation analysis. Findings revealed a significant negative relationship between the thoroughness of credit appraisal procedures and non-performing loan ratios (r = -0.58, p < 0.05), indicating that rigorous appraisal reduces default incidence. Collateral requirements were enforced inconsistently, with 62% of sampled institutions accepting informal asset documentation. Loan monitoring was identified as the weakest practice area, with 71% of credit officers reporting inadequate post-disbursement follow-up capacity due to staff shortages. The study concludes that credit risk management in Kano State microfinance banks requires capacity strengthening in loan monitoring and appraisal standardisation. The Central Bank of Nigeria is encouraged to enforce its microfinance banking supervisory framework more actively across the North West zone. Keywords: credit risk management, microfinance banks, non-performing loans, Kano State, loan appraisal