Clients Drop Out and Financial Performance of Micro Finance Institutions in Uganda: A Case Study of Uganda Finance Trust Central Branch

ABSTRACT Micro finance Institutions in Uganda seek to provide clients from poor households with a range of money management and banking services. Micro finance is important to the well being of the society because it improves on the welfare, wealth and general standards of living for those people involved in micro finance activities. Despite Micro Finance Institutions effort to support the low income earners by providing financial services, a high rate of clients drop out has persisted. The problem arising out of these excessive levels of client dropout is that they are likely to have negative effects on the financial performance of Micro Finance Institutions. Basing on the above problem, the study was set; to assess the impact of client dropout on the financial performance of Micro finance Institutions in Uganda and also To determine the factors responsible for clients dropouts in Microfinance Institutions in Uganda ~The research was based on a qualitative case study design of a descriptive nature and analytical based on structured questionnaires where the sources of data for this research were primary and secondary sources The findings of the study revealed that Dropouts are the most important factors that lead to losses, which in the long run lead to capital erosion. Dropouts affect profitability by reducing the interest earned on loans. Additionally, they lead to increase in operational costs that have the impact on profitability and Capital Growth since they loose interest earned on loans. The analysis of the findings, Indicates that the structure of various programs has influenced the dropout’s rate significantly. The lack of grace period, high interest rates and poor loan monitoring are structural problems that need to be addressed seriously. The research recommends that Microfinance institutions in Uganda should design client responsive products, Introduce client exit surveys, have group guarantee systems, encourage Loan restructuring, train credit officers, Credit reference, charge customer friendly Interest rates, and Increase in loan terms.