Credit Management And Financial Performance Of Microfinance Institutions In Uganda A Case Study Of Pride Micro Finance Ltd Kabalangala Branch

TABLE OF CONTENT

DECLARATION ............................................................................................................................ i

APPROVAL ................................................................................................................................... ii

DEDICATION .............................................................................................................................. iii

ACKNOWLEDGEMENTS ......................................................................................................... iv

LIST OF TABLES ......................................................................................................................... V

LIST OF ACRONYMS ................................................................................................................ vi

ABSTRACT ................................................................................................................................... x

TABLE OF CONTENT .............................................................................................................. vii

CHAPTER ONE ............................................................................................................................ 1

1.0 Back ground of the study ....................................................................................................... I

1.2 Problem statement ................................................................................................................. 3

1.3 Purpose of the study ............................................................................................................... 4

1.4 Research Objective ................................................................................................................ 4

1.5 Research questions ................................................................................................................. 4

1.6 Significance of the study ....................................................................................................... 5

1.7 Scope of the study .................................................................................................................. 5

CHAPTER TWO ........................................................................................................................... 6

LITERATURE REVIEW ............................................................................................................. 6

2.1. Theoretical Review ............................................................................................................... 6

2.2 Asymmetric Information Theory ........................................................................................... 6

2.2.1 Transactions Costs Theory ................................................................................................. 7

2.3 Financial Performance Measures ........................................................................................... 7

2.3.1 Financial Profitability ......................................................................................................... 8

2.3.2 Efficiency ............................................................................................................................ 9

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2.3.3 Credit Risk Exposure ........................................................................................................ I 0

2.4 Credit Management Variables ............................................................................................. I 0

2.4. I Client Appraisal ................................................................................................................ I 0

2.4.2 Credit Risk Controls ......................................................................................................... I I

2.4.2.1 Loan product design ...................................................................................................... I I

2.4.2.2 Credit Committees ......................................................................................................... I I

2.4.2.3 Delinquency Management ............................................................................................. 12

2.4.2.4 Client Orientation .......................................................................................................... 12

2.4.2.5 Staff Incentives .............................................................................................................. 12

2.4.2.6 Loan Rescheduling ........................................................................................................ 12

2.4.3 Collection Policy .............................................................................................................. 12

2.5 Empirical Review ................................................................................................................ 12

CHAPTER THREE .................................................................................................................... 16

RESEARCH METHODOLOGY ............................................................................................... 16

3.1 Research Design .................................................................................................................. 16

3.2Target Population .................................................................................................................. 16

3.3 Determination of Sample size .............................................................................................. 16

3.4 Data Collection instruments ................................................................................................ 16

3.5 Data Source .......................................................................................................................... 17

3.6 Data Validity and Reliability ............................................................................................... 17

3.7 Data Analysis ....................................................................................................................... 18

CHAPTER FOUR ....................................................................................................................... 19

DA TA ANALYSIS, RES UL TS AND DISCUSSION ............................................................... 19

4.1 Data Analysis ....................................................................................................................... 19

4.1.1 General Information .......................................................................................................... 19

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ABSTRACT

Credit management is one of the most important activities in any company and cannot be

overlooked by any economic enterprise engaged in credit irrespective of its business nature.

Sound credit management is a prerequisite for a financial institution's stability and continuing

profitability, while deteriorating credit quality is the most frequent cause of poor financial

performance and condition. As with any financial institution, the biggest risk in pride

microfinance is lending money and not getting it back. The study sought to determine the effect

of credit management on the financial performance of Microfinance Institutions in Uganda. The

study adopted a descriptive survey design. The population of study consisted of 59 MF!s in

Uganda that are members of AMF!. A census study was used to carry out the research. Primary

data was collected using questionnaires where all the issues on the questionnaire were addressed.

Descriptive statistics were used to analyze data. Furthermore, descriptions were made based on

the results of the tables. The study found that client appraisal; credit risk control and collection

policy had effect on financial performance of PMF!s in Uganda. The study established that there

was strong relationship between financial performance of PMFis and client appraisal, credit risk

control and collection policy. The study established that client appraisal, credit risk control and

collection policy significantly infiuence financial performance of PMFls in Uganda. Collection

policy was found to have a higher effect on financial performance and that a stringent policy is

more effective in debt recovery than a lenient policy. The study recommends that PMF!s should

enhance their collection policy by adapting a more stringent policy to a lenient policy for

effective debt recovery.

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