The Effect of Loan Portfolio Management on The Profitability And Sustainability of Selected Microfinance Companies in Ghana

ABSTRACT

The purpose the study sought to examines the impact of loan management on firm performance of microfinance companies in Ghana. With this study sought to determine the relationship between loan portfolio management in MFIs and financial sustainability, to assess the impact of loan portfolio management on MFI profitability, to recommend strategies for enhancing MFI sustainability. To achieve this the study employed an econometric approach using 10 microfinance firms listed on the Ghana Stock Exchange with data from firm annual financial accounting report for a period of 10years from 2007-2016. With performance indicators, return on equity the study found the average loan collection period, performance cycle, diversification and liquidity variables to have significant implications on the return on asset (robust measure) variable of the microfinance companies employed in this study and the performance cycle to have a negative and significant relationship with return on asset (5% significance level). Also, the study the average loan collection period, diversification and size variables have significant implications on the return on equity variable of the microfinance companies employed in this study and the diversification was to have a positive and significant relationship with return on equity (1% significance level). Therefore, this research concludes that efficient loan management is critical for the profitability of firms and sustainability of microfinance companies, thus, financial managers can create value for their shareholders by implementation of effective loan management systems.