Non-Performing Loans and Credit Risk Management in Microfinance Banks in Anambra State

Non-performing loans pose a systemic challenge for microfinance banks in Nigeria, threatening their operational sustainability and their capacity to serve low-income and underbanked populations. This study examines credit risk management practices and their relationship with non-performing loan ratios in selected microfinance banks operating in Anambra State, situated in the South East geopolitical zone. Using a survey research design, primary data are collected from 60 credit officers and risk managers across 15 microfinance banks in Awka, Onitsha, and Nnewi. A structured questionnaire assessing credit appraisal processes, collateral requirements, client monitoring practices, and loan recovery techniques is administered and analysed using descriptive statistics, chi-square tests, and regression analysis. The study is anchored on the credit risk assessment framework and engages with the Central Bank of Nigeria's prudential guidelines for microfinance institutions. Recent literature highlights the tension between outreach-driven lending mandates and conservative credit appraisal, particularly in markets characterised by information asymmetry and weak collateral frameworks. The study also evaluates the use of digital credit scoring as an emerging tool for managing default risk in the sector. Findings are expected to provide practical guidance for microfinance bank management and the Central Bank of Nigeria's supervisory department on strategies for reducing non-performing loan ratios without compromising financial inclusion objectives in the South East zone. Keywords: non-performing loans, credit risk, microfinance banks, Anambra State, credit appraisal