Chama Loan Default in Faulu Bank of Kenya-Bungoma County
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CHAMA in Faulu bank of Kenya means Group.The study aimed at investigating CHAMA loan default at Faulu Bank, a private owned Micro Finance Institution in Kenya. Faulu Bank was formed in the early 1980s, and its main role was to assist in the development of small and medium enterprises (SMs) by providing loans to individuals, businessmen, Chama, private companies, public bodies, local authorities and other persons engaged in business activities. Faulu began lending to CHAMA around 2006 with its Bungoma Branch of Bungoma County being one of its pioneer branches. The performance of the CHAMA loans was good with an initial default rate of 1% but in the subsequent years the performance of the Chama loans in the Bungoma branch became very poor, recording the highest rate of 80% default in 2009. The findings of the study done in 2013 suggest that the amount of loan has no effect on default; size of the CHAMA has a significant positive effect on CHAMA loan default, while age of the CHAMA, profitability and loans turnover all produced significant negative effect on CHAMA loan default. The findings of the study are useful in designing of credit scoring systems by Faulu Bank and other lending institutions embracing the Chama lending model.
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