The Impact of Digitalization on Credit Risk Management in Microfinance Institutions in Nueva Ecija, Philippines

Abstract

The study examines the credit risk management practices of lending institutions in rural Nueva Ecija, Philippines, amidst their significant growth and the evolving economic landscape. Given their pivotal role in financial transactions, these institutions face inherent risks which necessitate effective management strategies. Employing a descriptive method, the research identified and evaluated credit risk management practices, focusing on credit analysis and collection policies. The study also assessed the impact of digitalization on these practices within microfinance institutions in the region. Findings indicated that while there was no significant relationship between credit risk management practices and loan collection performance, digitalization emerged as a promising avenue for enhancing efficiency and reducing risks. Metrics such as portfolio-at-risk, on-time repayment rate, and past due rate were used to evaluate loan collection performance.
The study underscores the potential of digital tools and platforms in transforming credit risk management, offering opportunities to streamline operations and improve collection policies. It identifies current market challenges and outlines strategies to mitigate risks effectively, thereby enhancing the stability and efficacy of rural lending institutions in Nueva Ecija.