MAKERERE UNIVERSITY
FACULTY OF ECONOMICS AND MANAGEMENT (FEMA)
LOAN PERFORMANCE AND THE PROFITABILITY OF MICRO FINANCE
INSTITUTIONS
A CASE STUDY OF FINANCE TRUST LTD IGANGA BRANCH
MAGANDA KIZITO HUSSEIN
/06/U/9268/EXT
SUPERVISED BY:
MR. EBIRU DAVID
A RESEARCH REPORT SUBMITTED TO MAKERERE UNIVERSITY ON
PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF
BACHELOR OF COMMERCE DEGREE
JUNE 2010
i
DECLARATION
I Maganda Kizito Hussein declare that this research report is my original work and has never
been published and submitted to this university or any other institution for any award.
Signed:………………………………..
MAGANDA KIZITO HUSSEIN
Date:……………………………………
i
APPROVAL
The undersigned I declare that I have supervised this research report and I am satisfied that is
worthy for the award of Bachelor of Commerce Degree of Makerere University.
Signed………………………………….
Mr. EBIRU DAVID
(SUPERVISOR)
Date……………………………………………………..
ii
DEDICATION
This report is dedicated to my dear wife Mrs. Balisimaki Rose, my brother Isabirye Farouk and
my children Nasuuna Sumayah, Kizito Hasan and Kizito Abdu.
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ACKNOWLEDGMENT
I wish to extend my sincere gratitude to all people who assisted and encouraged in my struggle
both physically and spiritually.
My sincere appreciation and thanks go to my supervisor Mr. Ebiru David of his guidance
towards the accomplishment of this report.
My appreciation goes to Makerere University lecturers for Bachelor of Commerce for the
knowledge and advice they gave me during my course.
Special thanks go to my parents Mr. and Mrs. Maganda Abdu for the parental advise, support
and encouragement. I can not forgot to thank my Mummy Nangabi Ajibe for the struggle since
my secondary level education.
Also I would like to appreciate and thank my friends for their encouragement and support
especially Mugeere Moses and his companion madam Flavia Nakigudde, Kagaha Stephen,
Birungi Leonard, Ssekate Julius and Mukalakasa Ronald.
My thanks go to Mr. Kyeyago Ahamed for guiding in this research report and lastly I wish to
thank my late madam Barbra and the respondents for Uganda Trust Finance and the clients for
answering my questionnaires.
Thank you all.
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TABLE OF CONTENTS
DECLARATION..............................................................................................................................i
APPROVAL....................................................................................................................................ii
DEDICATION...............................................................................................................................iii
ACKNOWLEDGMENT................................................................................................................iv
TABLE OF CONTENTS................................................................................................................v
LIST OF TABLES.......................................................................................................................viii
LIST OF ACRONYMS..................................................................................................................ix
ABSTRACT....................................................................................................................................x
BACKGROUND TO THE STUDY................................................................................................1
1.0 Introduction...........................................................................................................................1
1.1 Background of the study.......................................................................................................1
1.2 Statement of the problem......................................................................................................2
1.3 Purpose of the study..............................................................................................................2
1.4 Objectives.............................................................................................................................2
1.5 Research Questions...............................................................................................................3
1.6 Scope of study.......................................................................................................................3
1.7 Significance of the study......................................................................................................3
CHAPTER TWO.............................................................................................................................4
LITERATURE REVIEW................................................................................................................4
2.0 Introduction...........................................................................................................................4
2.1 Challenges facing MFI in improving loan performance.......................................................4
2.2.1 Fiduciary...........................................................................................................................4
2.2.2 Strategies...........................................................................................................................4
2.2.3 Supervisory.......................................................................................................................4
2.2.4 Management Development...............................................................................................5
2.3 Level of profitability in MFI.................................................................................................7
2.4 Relationship between loan performance and the level of profitability.................................8
CHAPTER THREE.......................................................................................................................10
METHODOLOGY........................................................................................................................10
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3.0 Introduction.........................................................................................................................10
3.1 Research design..................................................................................................................10
3.2 Study population.................................................................................................................10
3.3 Sampling design..................................................................................................................10
3.4.1 Sample size.....................................................................................................................11
3.4.2 Sampling procedure........................................................................................................11
3.5 Sources of data....................................................................................................................11
3.6 Methods of data collection and tools..................................................................................12
3.6.1 Questionnaires.................................................................................................................12
3.6.2 Documentary evidence....................................................................................................12
3.6.3 Tools of data collection...................................................................................................12
3.7 Data analysis and presentation of major findings...............................................................12
3.7.1 Data analysis...................................................................................................................12
3.7.2 Data presentation.............................................................................................................12
CHAPTER FOUR.........................................................................................................................13
PRESENTATION DISCUSSION AND ANALYSIS OF FINDINGS.........................................13
4.0 Introduction.........................................................................................................................13
4.1 Demographic characteristic................................................................................................13
4.1.2 Age of respondents..........................................................................................................14
4.1.3 Marital status of the respondents....................................................................................16
4.1.4 Level of education of the respondents............................................................................16
4.1.5 Length of services...........................................................................................................17
4.1.6 Findings on what kind of businesses were done by the clients of FTU..........................18
4.2 Challenges facing the MF in improving loan performance................................................19
4.2.1 Findings on the board members have responsibility of safe guarding the interests of FTU 19
4.2.2 Findings on whether the board supervises management in the execution of the approved strategic plan and evaluate the performance of management........................................................19
4.2.3 Findings on whether FTU face a challenge of high costs of service delivery with poor infrastructure, regulatory policy issues and the need to develop institutional leadership.............20
4.2.4 Collateral security...........................................................................................................21
4.3 Levels of profitability in finance trust micro finance.........................................................22
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4.3.1 Costs of financial resources..................................................................................................23
4.3.2 Premium and profit.........................................................................................................24
4.4 Relationship between loan performance and the level of profitability...............................25
4.4.1 Intervention of the central bank......................................................................................25
4.4.2 Interest rate and performance and profitability...............................................................26
4.4.4 Supervision and loan performance and profitability.......................................................26
4.4.5 Recovering loans from the clients...................................................................................27
4.5 The relationship between loan performance and profitability of FTU MFI.......................27
CHAPTER FIVE...........................................................................................................................31
SUMMARY, CONCLUSION AND RECOMMENDATIONS....................................................31
5.0 Introduction.........................................................................................................................31
5.1 Summary of findings..........................................................................................................31
5.2 Main findings......................................................................................................................31
5.3 Conclusion...............................................................................................................................32
5.4 Recommendation.....................................................................................................................33
5.5 Area for further research.................................................................................................33
REFERENCES..............................................................................................................................34
APPENDICES...............................................................................................................................36
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LIST OF TABLES
Table 4. 1: Sex of respondents.......................................................................................................13
Table 4. 2: Age of respondents......................................................................................................15
Table 4. 3: Marital status of the respondents.................................................................................16
Table 4. 4: Level of education of the respondents.........................................................................16
Table 4. 5: Length of services........................................................................................................17
Table 4. 6: Sectors where most customers come from..................................................................18
Table 4. 7: Response on whether FTU customers on the board is safe guarding the FTU interests
.......................................................................................................................................................19
Table 4. 8: Board supervision........................................................................................................20
Table 4. 9: High costs, service delivery and infrastructure...........................................................20
Table 4. 10: Collateral security......................................................................................................21
Table 4. 11: Loan processing.........................................................................................................22
Table 4. 12: Interest charge...........................................................................................................22
Table 4. 13: Effects of staff training..............................................................................................23
Table 4. 14: Financial resources....................................................................................................24
Table 4. 15: Premium and profits..................................................................................................24
Table 4. 16: Intervention of bank of Uganda.................................................................................25
Table 4. 17: Interest rate and performance and profitability.........................................................26
Table 4. 18: Supervision and loan performance and profitability.................................................26
Table 4. 19:General performance and profitability level of MFIs.................................................27
Table 4. 20: Showing the relationship between loan performances and profitability of FTU MFI
.......................................................................................................................................................28
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LIST OF ACRONYMS
MFI - Micro Finance Institutions
PRESTO - Private Enterprise Support, Training and Organization Development
MF - Micro Finance
COWAN - Country Women Association of Nigeria
FI - Financial Institutions
PEAP - Poverty Eradication Action Plan
SPSS - Special Package for Social Scientists
UWFT - Uganda Women Finance Trust
FT - Finance Trust
NGOs - Non Governmental Organizations
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ABSTRACT
The study was carried out under the topic loan performance and profitability with a case study of
Finance Trust Uganda Micro Finance Institution. The study to establish challenges facing the
MFI in improving loan performance, to establish the level of profitability in MFI, to establish the
relationship between loan performance and the level of profitability. Various related literature
was looked at the majority was in agreement that proper loan performance management results
into high level of profitability.
A cross-sectional design and correlation was used during the study. The population was technical
staff of FTU and the sample size was 40 respondents. A self administered questionnaires was
used during data collection.
The study results revealed a weak negative relationship (r= _0.136) between loan performance
and profitability in FTU microfinance institution. Pearson (r2) findings indicated that 1.85% of
the variance in the profitability was explained by loan performance and 98.15% was due to other
variables not under this study. This implies that if loan performance would most probably in the
same direction.
The study recommended that FTU should appreciate the findings in the relationship between
loan performance and profitability to ensure its continued survival in competitive finance
industry in Uganda.
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CHAPTER ONE
BACKGROUND TO THE STUDY
1.0 Introduction
This chapter of the research proposal will cover the background of the study, the
statement of the problem, the objectives of the study, research questions and scope
of the study.
1.1 Background of the study
Micro finance institutions (MFI) are organizations that provide savings and / or credit facilities to
micro and small scale businesses people. MFIs provide finance services to active poor people
who have experienced difficulties in obtaining this service from most formal financial
institutions because of their businesses, saving levels and credit needs are all small. MFI in
Uganda include banks several companies limited by shares and a large number of NGOs,
companies limited by guarantee, cooperative and credit unions PRESTO Directory of MFI.
According to Africa magazine, MFI is a term commonly used to define financial institutions
dedicated in assisting small enterprises, the active poor and house holds that have no access to
the move institutionalized financial system, in mobilizing savings and obtaining access to
financial services.
MFI is the provision of finance service to low income, poor and very poor self employed people.
Otero (1999).
In Africa MFIs’ have reported notable gains. The sector has transformed from an insignificant
player in the national psyche to a recognized sector with potential to equitably offer finance
services to the active poor women in viable micro enterprises empower enterprising women
through financial access and skills and drastically reduce poverty. Access to saving and credit
facilities strengthen communities in economic decisions, Africa executive.
Today one of the most compelling challenges facing Uganda is the problem of poverty. Poverty
is not only on a steady increase but also wide spread in rural country’s development challenge
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and poverty alleviation, micro finance is becoming one of the most popular options as credit has
been identified as a barrier facing the poor. Lufumpa (1999). The rural communities operate
mainly in informal economy where the whole context for their lives and economics activities
does not have enough surpluses to lift the standard of living as a consequence, they lack the
ability to generate income to save to start economic activities and access credit from the formal
sector is heavily restricted due to lack of collateral. The poor are tradition disregarded as “un
bankable” and “un credit worth”. So therefore the problem of micro finance is to enable the poor
community to pull out of their poverty situation is critical. Yunus S (1999).
1.2 Statement of the problem
Despite the effort put in place by FTU to improve on the loan performance and profitability
through tight follow up of loan and short grace period, its still facing the problem of loan default
due to the belief that micro finance loan is government’s money. Thus it has led to declining
profitability as indicated in table one below;
Table 2: Showing the variation in the level of profitability and Finance Trust Iganga
branch for the period of three years
YEAR PORTFOLIO PROFITABILITY PER YEAR
2006/7 1,172,840,439/= 380,268,576/=
2007/8 1,353,755,396/= 360,254,254/=
2008/9 1,344,537,751/= 330,638,450/=
The researcher therefore wishes to investigate the relationship between loan performance and
profitability of micro finance institutions.
1.3 Purpose of the study
The study established the loan performance and profitability of MFI
1.4 Objectives
The study were guided by the following research objectives
To establish challenges facing the MFI in improving loan performance
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To establish the level of performance in MFI
To establish the relationship between loan performance and the level of profitability
1.5 Research Questions
The following research questions guided the study
What is the level of profitability in MFIs?
What are the challenges facing MFIs on loan performance?
What is the relationship between loan performance and profitability in MFIs
1.6 Scope of study
The geographical scope: the study covered finance Trust Bank in Iganga branch in Iganga Town.
The period of scope: the research was carried out between March and June 2010.
Subject scope: it covered loan performance and profitability of MFI
1.7 Significance of the study
The results of the study will provide the following values
The study will help improve the loan performance of MFIs
The research findings will help the management in designing appropriate strategies to
address the challenges facing the MFIs’ performance.
The study will serve as source of information to other researchers.
The study will enable the researcher to acquire his Bachelor’s degree in Commerce.
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CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This will include theory on the variables with emphasis of existing literature on the
variables.
2.1 Challenges facing MFI in improving loan performance
According to Maria et al (1997) found out that MFI faces a challenge in improving loan
performance with the organizations board responsibilities were by the basis
responsibilities of the board which comprises; fiduciary, strategic, supervision and
management development are not full in most organizations.
2.2.1 Fiduciary
The board has the responsibility to safe guard the interests of all the institutions’
stakeholders. As such the board serves as a check and balance to provide confidence to
company’s investors, staff, customer and other key stakeholders that the managers will
operate in the best interest of the institution.
2.2.2 Strategies
The board participates in the organization’s long term strategy by critically considering
the principle risks to which the organization is exposed and approving plans presented by
management. The board does not generate corporate strategy but instead reviews
management plans in light of the institutions’ mission and approves them accordingly.
2.2.3 Supervisory
The board delegates the authority for operations to the management through the chief
executive officer. The board supervises management in the execution of the approved
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strategic plan and evaluates the performance of management in the context of the goals
and time frame out lined in the plan.
2.2.4 Management Development
The board supervises the selection, evaluation and compensation of the senior
management team. This includes succession planning for the CEO in the transition from a
small growing and entrepreneurial organization to become an established institution,
governance ensures that the company survives.
Robert Peck (2004) asserts that traditionally banks have not provided services, such as
loans to clients, with little or no cash income. Banks incur substantial costs to manage a
client account, regardless of how small the sum of money involved. But the fixed cost of
processing loans of any size is considerable as assessment of potential borrowers, their
repayment prospects and security, administration of out standing loans, collecting from
the delinquent borrowers etc has to be done in all cases. There is a break even point in
providing loans or deposits below which banks loose money on each transaction they
make. Poor people usually fall below that breakeven point.
Yunus (2008) found out that most people MFI give loan are poor and have few assets that
can be secured by the bank as collateral. Even if they happen to own land in the
developing world they may not have effective title to it. This means that the bank will
have little recourse against defaulting borrowers.
In Stuart Rutherfords (2000) recent book the poor and their money he cites several types
of needs which the poor requires in their day to day leaving;
- Life cycle needs such as wedding females, child birth, education, home building etc
- Personal emergences such as sickness, injury, unemployment, theft, harassment or death.
- Disasters such as fire, cyclones, floods and man made events like wars.
- Investment opportunities which needs expanding business, buying land or equipment,
improving housing, securing a job (which often requires paying huge bribe) etc poor
people always face big challenge of how to create and often collaborate ways to meet
these needs, primarily though creating and exchanging different forms of non cash value.
5
Yunus (2008) further asserted that MFI charge high interest to borrowers which interest is far
high to the poor. The real average portfolio yield cited by the sample of 704 MFI that
voluntarily submitted reports to micro banking bulleting in 2006 was 22.3% annually.
However, annual rates charged to clients are higher, as they also include local inflation and
bad debt expenses of the MFI.
Asma (2010) at the same time says that the high rate of micro credit have been under the
microscope of industry analysts for quite some time focusing on operating expenses because
they are the main component of interest rates. The challenge of MFI is to reduce on the cost
of service delivery which will ultimately lower the cost of credit for the poor.
Kiva asserts that comprehensive impact studies have demonstrated that MFI helps very poor
household, meet basic needs and protect against risk, use of financial services by low income
household is associated with improvements in household economic welfare and enterprise
stability of growth by supporting women’s economic participation, micro finance helps to
empower women, thus promote gender equality and improving household wellbeing.
In addition the government of Uganda has supported credit activities within the framework of
other multipurpose projects including the micro projects program, Danida Credit Scheme in
Rakai District NURP, and PAPSCA. However, implementation of many government
programs lacked the effective methodologies and the adequate management and coordination
capacity necessary for their success. As a result the performance of the schemes was
adversely affected by the very poor loan recovery, inefficiency and high management cost
which consequently lead to under performance and or collapse.
Akinyi (2009) asserted that among challenges facing MF industry in Africa are high costs of
service delivery with poor infrastructure, regulatory policy issues and the need to develop
institutional leadership. Because infrastructure and communication technology remains
underdeveloped in Africa, it is significantly more expensive for MFI in Africa to operate
compared to their persons in developing countries.
In addition to policy making and government regulations which vary from country to
country. In many countries like Uganda the supervisory capacity of central banks, this holds
the ultimate responsibility of financial sector needs and adjustment. The countries which are
6
able to close the MF demand gap most successfully will be those that improve their policy
framework and adopt their legal and regulatory systems in line with rapidly changing
industries.
2.3 Level of profitability in MFI
According to Elodie Parent (2009) the interest rates charged by MFIs are calculated on
the basis of their financial situations and profitability targets. To make these rates more
affordable for their low income clients, MFIs can conduct an analysis of their financial
situation using four key criteria – the aim is then to optimize them. MFIs profitability
targets are set by their share holders and could be better assessed and more transparent.
This can ultimately lead to readjustment that will bring down rates while maintaining an
adequate of profitability.
Gonzalez et al (2009) asserts that to preserve an instrument to combat poverty, all MFI
prayers both donors and the private sector have to declare that they are convinced that it
is important for MFIs to continue to be a tool to combat poverty. Faced with such
consequences, stakeholders must conduct an in-depth reflection process that will allow
them to establish a fair rate to charge clients based on moderate profitability. This process
is more important because we are aware of the risks of over indebtness that are intrinsic
to the sector and of the poorest being decapitalized. In light of the above donors and
private sector must continue to develop partnership so that a common approach
investment in MFI can be built, while respecting their risk management constraints and
profitability targets.
Richardson (2002), further said that the cost of financial resources (equity, debt, deposit)
must be optimized by trying to give priority to deposits, which are often the cheapest
resources. If this is not possible, MFI should optimize the debt/equity leverage effect in
order to avoid financing growth exclusively at a exorbitant cost of accrued income.
Indeed this case it can only achieve sufficient level of net income by charging high rates
which in turn will rise the level of equity so as to boost growth or at least not to curb it.
According to CGAP – Kiva microfinance there are three types of costs the MFI has to a
7
cover when it makes micro loans; the cost of the money it lends, cost of loan default and
transaction costs.
For instance if the cost paid by the MFI for the money it lends is shs 10 and experiences
defaults of shs. 1 of the amount lent then these two costs will total to shs. 11 for a loan of
shs. 100 and shs. 55 for a loan of shs. 500 plus the transaction loans which is not
proportional to the amount lent hence the profitability level will reduce given the above
scenario.
Yunus (2008) asserted that NGOs tend to be more committed to serving the poor than
other types of MFIs but these results imply that they are profit oriented. His method is
that high premium indicates as high profit, but on the analysis of MFIs, it was found that
profits are minor driver of interest yield and interest premium. Premium, which is the
difference between the MFIs interest rates and its cost of fund, is largely governed by
loan sizes and operating costs. Fully 80% of interest rate premium is explained by
operating costs which profits accounting for only 9% of the measure.
2.4 Relationship between loan performance and the level of profitability
According to the Letenah (2009), experience has shown that funding agencies MF
interventions produce better results when designed reporting and monitoring focus
explicitly on key measures of performance. Unfortunately many projects fail include such
measurement. This note, written for staff who design on monitor projects that fund MFIs,
offer basic tools to measure performance of MFIs in areas like out reach, client poverty
level, collection performance financial sustainability and efficiency hence affecting the
level of profitability.
According to Petra (2007) the Latin America region exhibits the greatest profitability and
sustainability in MFI than any other region in the world. It is also one of the diverse
institutionally and conceptually providing complex financial products.
According to MF bulletin in 2007 some MFIs have traditionally provided loans to micro
entrepreneurs and moving into the consumer mortgage and low end commercial
segments.
8
At the same time, large consumer focused lenders are trying to compete on the MF
market.
Dan Matovu (2006), asserted that there is a remarkable changes in the situation of
community accruing to MF intervention. The community especially the women have had
their voices strengthened, they have managed to set up their businesses and run them,
their loan performance has improved and their leadership skills in business have been
enhanced. They have gained more confidence that can enable them to stand on their own
because level of profitability in their businesses has improved.
According to PEAP, when you help the poor with MF, then the problem of poverty is
gone for ever. However, one has to be very careful with this type of argument because it
ignores the fact that capital as a resource is just one factor production which must be
combined with other factors like entrepreneurial skills, well functioning markets good
feeder roads to transport merchandize and good communication which can facilitate good
loan performance hence improvement of profitability.
According to World Bank report (2005) investing in education, health and gender
equality are critical in attaining the millennium development goals. These investments
help to empower the people to participate in decision about development projects that
affect their lives and the lives of their families. The MFI are the world leaders in
investing in people empowerment in doing so loan performance indicators must be seen
in order to empower the community hence achieving a certain level of profitability in
what ever investments carried out.
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CHAPTER THREE
METHODOLOGY
3.0 Introduction
This chapter was to provide a description of research design, nature of study, source of
data collection, source of information, sample size, methods of data collection, data
analysis and presentation.
3.1 Research design
The type of research approach was a survey. The researcher uses a descriptive and
analytical design because he was interested in getting data that was to help him to draw
conclusion on the topic in question.
3.2 Study population
Given the nature of the cause problems associated with un answered questionnaires and
non response issues and time factor, the population of the study involved top managers,
respondents from marketing and credit department, accounts department and others who
were in position to answer the researchers’ questionnaires.
3.3 Sampling design
The researcher used both random and non random sampling techniques to select
respondents this is because it was economical and relevant to interview all people in the
organization. Stratified random sampling and simple random sampling was used. Here
the researcher used departments as strata. And after which simple random sampling was
used to determine the final respondents like credit officers, marketers, accounts officers
and auditors.
10
Using non random sampling purposive sampling was used whereby the staff was to be
consisted crucial for the provision of information that was used to be chosen to respond
for example accountant, manager and credit officers.
3.4.1 Sample size
Due to limited time and other limiting factors the study was carried out on only 40
respondents in the following manner; 1 manager, 1 accountant, 5 credit officers, 4
accounts assistants and others. The sample for the study was as below;
Table 2: Showing the sample size
Respondents No of Respondents
Top manager 01
Accountant 01
Credit officers 05
Accounts Assistant 04
Others 29
Total 40
3.4.2 Sampling procedure
To avoid being biased the researcher selected the sample from the department that were
directly affected by the level of profitability of MFIs.
The researcher employed simple random technique and stratified sampling in that in
various department and others were used as strata whereby it was easy and possible to
use that stratum so that the sampling is done well hence getting clear and collect data. By
use of simple random sampling method the researcher assigned numbers of various
respondents that were selected randomly by their numbers, which acted as samples out of
the population and as well as organization charts were selected to show the data got. This
kind of technique was good in that little time could be taken hence simplifying work.
11
3.5 Sources of data
These constituted both primary and secondary sources. The primary data were obtained
from management and employees using questionnaires and interviews. On the other hand
secondary data were obtained by reviewing organizations’ records and journals.
3.6 Methods of data collection and tools
The methods of data collection included application of questionnaires and documentary
review.
3.6.1 Questionnaires
This is an instrument of data collection method consisting of a set of questions to which
the subject respondents replied in writing. This kind of instrument was to be good
because there were minimal personal attendance.
3.6.2 Documentary evidence
This involved reading journals and other published materials. This was mainly employed
when sourcing secondary data.
3.6.3 Tools of data collection
The tools of data collection which were used include clip boards pencils, pens, writing
papers and other instructional materials which were deemed important for the research to
be successful.
3.7 Data analysis and presentation of major findings
3.7.1 Data analysis A data were analyzed quantitatively and qualitatively by using figures, averages,
percentages and statistical techniques by use of SPSS.
12
3.7.2 Data presentation
At the end of data collection the researcher used tabulation to present the data gathered.
This was reached on the use of relevant tables frequencies and percentages to present the
data gathered.
13
CHAPTER FOUR
PRESENTATION DISCUSSION AND ANALYSIS OF FINDINGS
4.0 Introduction
This chapter presents empirical findings and interpretation of the data collected in
relation to the loan performance and the profitability of micro finance institutions.
It is divided into sections. That is demographic characteristics of respondents, discussion
on loan performance, profitability levels, and the relationship between loan performance
and the profitability of micro finance institutions.
4.1 Demographic characteristic
This included age, sex and qualifications of respondents. Table 4.1 summaries the sex of
the respondents in FTU
Table 4. 1: Sex of respondents
Gender Frequency Percentage
Males 28 70
Females 12 30
Total 40 100
Source: Primary data
According to the table above 70% of the respondents were male and 30% of the respondents
were female. This was because males were involved in various activities that generate income
and were afraid of getting income whereas female were involved in activities that yield low
income hence were risk averse. There was none response.
14
Pie chart
28
12
MaleFemale
4.1.2 Age of respondents
The following table shows the age of the respondents established during the study.
15
Table 4. 2: Age of respondents
Age group Frequency Percentage
Under 20 years 15 37.5
21 -30 13 32.5
31 – 50 8 20
50 and above 4 10
Total 40 100
Source: Primary data
From the table above 32.5% of the respondents were of age group between 31-40 years, 37.5%
of the respondents were of the age group between 18 – 30 years while 20% of the respondents
were of the age group between 41-50 years and 10% of the respondents were above the age of 50
years majority of the respondents were between 18-30 years. This implies that they are still
energetic and in the youth category expected to perform well in their assigned duties.
Under 20 years
21 -30 31 -50 50 and above0
2
4
6
8
10
12
14
16
Series1
Age of respondents
Freq
uenc
y
16
4.1.3 Marital status of the respondents
The following table present marital status of the respondents as illustrated below in table
4.3
Table 4. 3: Marital status of the respondents
Marital status Frequency Percentage Single 15 37.5Married 25 62.5Divorce 0 0Widow 0 0Total 40 100Source: Primary data
From the table above, 37.5% of the respondents were single 62.5% of respondents were married
while no responses was registered on divorce and separated. Majority of the respondents were
married and thus through to be responsible to not only their females but also in their respondents
department/office in DFCU Bank.
4.1.4 Level of education of the respondents
The following table presents level of education of the respondent to established during
the study.
Table 4. 4: Level of education of the respondents
Level of education Frequency Percentage Primary 4 10Secondary 6 15Certificates 10 25Diploma 4 10Degree 16 40Others 0 0Total 40 100Source: Primary data
From the above table it was found out that the respondents could read and write hence evaluation
of the loan applicant was not the problem. For example 45% of the respondents were of primary
17
level, 15% were of secondary 25% had certificates 10% of the respondents had diplomas and
40% had degrees. This implies that majority of respondents in FTU are graduates and expected
to deliver to the expectation of a graduate – personnel irrespective of the office department they
belong to in FTU Micro Finance.
4.1.5 Length of services
The following table shows the length of services of the respondents in FTU Bank.
Table 4. 5: Length of services
Period (year) Frequency Percentage
Less than 2 years 4 10
2-4 6 15
5-10 12 30
More than 10 18 45
Total 40 100
Source: Primary data
The study findings confirmed that 10% of the respondents had served in FTU bank for a period
of less than two years. 15% for a period of 2-4 years, 305 for a period of years and 45% for a
period of 5-10 years. Majority the respondents 45% had served FTU for a period of more than 10
years. This signifies that they are well versed with FTU strengths, weakness and achievements.
18
4.1.6 Findings on what kind of businesses were done by the clients of FTU
Table 4. 6: Sectors where most customers come from
Sector Frequency Percentage
Retail trade 10 25
Manufacturing e.g. bakery 20 50
Rearing e.g. poultry 6 15
Service e.g. saloons 4 10
Total 40 100
Source: Primary data
From the table above, 25% of the respondents who applied for loan invested in retail business
because which was assumed to have quick returns 50% of the respondents showed that
customers were in manufacturing like bakery, maize flour making, rice processing, while 15% of
the respondents were in farming like poultry and 10% comprised of service provision like
saloon, hotels, schools, clinics. The majority were in manufacturing because it takes a lot of loan
(money) and their machines act as security to get loans.
19
4.2 Challenges facing the MF in improving loan performance
4.2.1 Findings on the board members have responsibility of safe guarding the interests of FTU
The following table presents the responsibility of the board in safe guarding the FTU
interests.
Table 4. 7: Response on whether FTU customers on the board is safe guarding the FTU interests
Response Frequency Percentage
Strongly agree 10 25
Agreed 19 47.5
Not sure 2 5
Disagreed 4 10
Strongly disagreed 5 12.5
Total 40 100
Source: Primary data
From the table above 25% of the respondents strongly agreed that board members have the
responsibility to safe guard the interests, 47.5% of the respondents agreed, 5% were not sure.
10% disagreed while 12.5% strongly disagreed. This implies that majority of the respondents
were in agreement with the statement.
4.2.2 Findings on whether the board supervises management in the execution of the
approved strategic plan and evaluate the performance of management
The table below presents response on whether the board supervises management in the execution
of the approved strategic plan and evaluates the performance of management
20
Table 4. 8: Board supervision
Response Frequency Percentage
Strongly agree 3 7.5
Agreed 9 22.5
Uncertain 15 37.5
Disagreed 9 22.5
Strongly disagreed 4 10
Total 40 100
Source: Primary data
From the table above indicates that 7.5% of the respondents strongly agree 22.5% agreed, 37.5%
were uncertain 22.5% were in disagreement while 10% strongly disagreed. The majority of the
respondents were uncertain and this implies that the management supervision is inadequate and
not satisfactory to the FTU microfinance.
4.2.3 Findings on whether FTU face a challenge of high costs of service delivery with poor
infrastructure, regulatory policy issues and the need to develop institutional leadership
Table 4. 9: High costs, service delivery and infrastructure
Response Frequency Percentage
Strongly agree 7 17.5
Agreed 10 25
Not sure 15 37.5
Disagreed 6 15
Strongly disagreed 2 5
Total 40 100
Source: Primary data
Results above indicate that 17.5% of the respondents strongly agreed that there are high FTU
25% agreed, 37.5% of the respondents are not sure, 15% of the respondents disagreed while 5%
21
strongly disagreed, this shows that the high costs are part of poor service delivery and poor
infrastructure.
4.2.4 Collateral security
On the question about collateral security whether the collateral security is required before
they advance the loans to the clients.
Table 4. 10: Collateral security
Options Frequency Percentage
Strongly agree 14 35
Agreed 20 50
Not sure 6 15
Disagreed - -
Strongly disagreed - -
Total 40 100
Source: Primary data
From the table above 35% of the respondents were in strong agreement that FTU requires
collateral security, 50% agreed, 15% were not sure implying that acquiring a loan needs a
collateral security in FIU which is in agreement with Kakuru, (2006), who asserts that banks
usually looks for a second source of repayment which is often security. Loan security comprises
of personal and business assets that can be sold to pay back the loan. If a potential borrower has
no collateral to secure a loan, he/she will need a guarantor; otherwise it may be difficult to obtain
a loan.
The final value of security is based on its market value but a much reduced value to account
expected loss in value if the asset has to be liquidated quickly.
Costs of processing a loan
The table below present findings on fixed costs of processing loans of any size is considerable as
assessment of potential borrowers regardless of how small the sum of money involved.
22
Table 4. 11: Loan processing
Response Frequency Percentage
Strongly agree 2 5
Agreed 9 22.5
Not sure 15 37.5
Disagreed 0 0
Strongly disagreed 5 12.5
Total 40 100
Source: Primary data
Results above indicates that 5% of the respondents were in strong agree, 22.5% was in
agreement 37% were not sure 22.5% disagreed while 12.5% strongly disagreed. Majority the
respondents were in disagreement that FTU meaning that the cost of processing a loan vary on
the amount of money to be taken, the honesty of the customer, as explained by Pandey (1995)
five Cs of effective credit policy, which include, Collateral Security on Loans, Capital,
Conditions, Character and Capacity.
4.3 Levels of profitability in finance trust micro finance
Interest charge
The table below represents the respondent’s views the interest rate charged by finance
Trust limited are calculated on the basis of their financial situations and profitability
targets.
Table 4. 12: Interest charge
Response Frequency Percentage Strongly agree 8 20Agreed 14 35Not sure 8 20Disagreed 6 15Strongly disagreed 4 10Total 40 100Source: Primary data
23
The result clearly indicates that 20% of the respondents strongly agreed 35% agreed 20% were
not sure 15% disagreed and 10% strongly disagreed. Majority agreed with credit policy in FTU
which is so significant because the micro finance can not be affected by any unconducive
economic environment.
Operational costs
The table showing response on Operational costs in finance Trust limited affects the level of
profitability
Table 4. 13: Effects of staff training
Options Frequency Percentage
Strongly agree 21 52.5
Agreed 9 22.5
Not sure 3 7.5
Disagreed 7 17.5
Strongly disagreed - -
Total 40 100
Source: Primary data
From the above table 52% of the respondents agreed that high operational costs affects the sales
and revenues hence the profit, 22.5% agreed, 7.5% were not sure, 17.5%
4.3.1 Costs of financial resources
The following where the respondent’s review on whether in order for Finance Trust to
make profits, the cost of financial resources (equity, debt, deposit) must be optimized
24
Table 4. 14: Financial resources
Options Frequency Percentage
Strongly agree 6 15
Agreed 20 50
Uncertain 8 20
Disagreed 6 15
Strongly disagreed - -
Total 40 100
Source: Primary data
Results above indicate that 15% of the respondents strongly agree, 50% agreed, 20% were not
sure, 15% disagreed and there were no respondents who strongly disagreed. Majority of the
respondents agreed financial resources are efficient and effective in generating high returns/
profits hence high levels of profitability in FTU. This is in line with that Eugenen (2000) say that
financial resources should be opted for in order to accelerated the vast economic opportunities by
investors in order to generate good returns on equity.
4.3.2 Premium and profit
On question about whether High premium indicates a high profit and profits is a minor driver of
interest yield and interest premium.
Table 4. 15: Premium and profits
Response Frequency Percentage Strongly agree 12 30Agreed 20 50Not sure 8 20Disagreed - -- - -Total 40 100Source: Primary data
Findings revealed that 30% of the respondents strongly agreed, 50% agreed 20% were not sure,
and nil response were registered on disagreed and strongly disagreement. Majority of the
25
respondents agreed that long High premium indicates a high profit and profits are a minor driver
of interest yield and interest premium. This implies strength in the loan performance of FTU
microfinance institutions.
4.4 Relationship between loan performance and the level of profitability
4.4.1 Intervention of the central bankThe table showing response on whether microfinance intervention by bank of Uganda produces
better results when design, reporting and monitoring explicitly on key measures of performance.
Table 4. 16: Intervention of bank of Uganda
Response Frequency Percentage Strongly agree 10 25Agreed 19 47.5Not sure 19 27.5Disagreed - -- - -Total 40 100Source: Primary data
From the table above 25% of the respondents strongly agreed, 47% agreed, 27% were not sure,
and response was registered on disagreed and strongly disagreement. The majority of the
respondents agreed that intervention by bank of Uganda produces better results when design,
reporting and monitoring explicitly on key measures of performance, given the certificate and the
licence issued out for operation, this gives out confidence while dealing with its clients.
26
4.4.2 Interest rate and performance and profitability
Table 4. 17: Interest rate and performance and profitability
Response Frequency Percentage
Strongly agree 18 45
Agreed 7 17.5
Uncertain 10 25
Disagreed 5 12.5
Strongly disagreed - -
Total 40 100
Source: Primary data
Results above indicate that 45% strongly agreed, 17.5% agreed, 25% were not sure, 12.5%
disagreed and nil response was registered on strong disagreement. The majority of the
respondents agreed that the higher the interest rate the lower the loans given out hence the lower
the profit generated. As agreed with Yunus (2008), who asserts that the high interest makes the
microfinance to fail to perform.
4.4.4 Supervision and loan performance and profitability
The table below shows the response on whether close supervision and monitoring effects loan
performance and level profitability.
Table 4. 18: Supervision and loan performance and profitability
Response Frequency Percentage Strongly agree 11 27.5Agreed 3 7.5Not sure 16 40Disagreed 5 12.5Strongly disagreed 5 12.5Total 40 100Source: Primary data
Findings above indicate that 27.5% of the respondents strongly agreed, 7.5% agreed, 40% are not
sure, 12.5% disagreed and 12.5% strongly disagreed. To some extent majority of the respondents
27
disagreed that because there is poor supervision to the clients, whereby clients need to be
reminded because some of them do not know how to calculate the interest, business planning.
4.4.5 Recovering loans from the clients
The responses on whether the failure to recover the credit loan from the clients affects the loan
performance and level of profitability.
Table 4. 19:General performance and profitability level of MFIs
Response Frequency Percentage Strongly agree 22 55Agreed 8 20Not sure 10 25Disagreed - -Strongly disagreed - -Total 40 100Source: Primary data
From the above table 55% of the respondents strongly agreed, 20% of respondents agreed 25%
of the respondents were not sure, and nil response registered on disagree and strongly
disagreement. This shows that general performance of FTU affects its profitability levels. This is
also recommended by Barley and Myres (1998) that general performance is a major technique of
attracting the clients and team building enthusiasm and profitability in general.
4.5 The relationship between loan performance and profitability of FTU MFI
Analyzing the relationship between loan performance and profitability of FTU, MFI using
regression analysis help to identify to what extent credit policies affect debt collection
performance.
28
Table 4. 20: Showing the relationship between loan performances and profitability of FTU
MFI
Key; SA – Strongly Agree, A – Agree, NS – Not Sure, D – Disagree, SD – Strongly Disagree, F-
Frequency and the respondents % percentage of responses
Loan performance Profitability X2 Y2 XYIndependent variable X
Dependent variable Y
Independent variable
Dependent variable
Independent dependent variable multiplied
1 A 29 A 26 841 676 7542 D 11 D 14 121 196 1543 A 11 A 32 121 1024 3524 D 29 D 8 841 64 2325 A 12 A 29 144 841 3486 D 28 D 11 784 121 3087 A 17 A 25 289 625 4258 D 23 D 15 529 225 3459 A 34 A 14 1156 196 47610 D 6 D 26 36 676 15611 A 11 A 30 121 900 33012 D 29 D 10 841 100 29013 A 22 A 36 484 1296 79214 D 18 D 4 324 16 7215 A 30 A 35 900 1225 105016 D 10 D 5 100 25 50
∑X 320 ∑Y 320 ∑X2 7632 ∑Y2 9447 ∑XY = 6136Source: Primary data
Given y = a + bx
While y = the dependent variable (loan performance)
x = the dependent variable (profitability)
a = the dependent variable intercept
b= slope of both variable above
r = n ∑XY = ∑X∑y
√[ ∑x2 – (∑X2) [n∑y2 - ∑y)2]
29
Where n = number of items = 16
r = (16 x 6136) – (320 x320)
√[16 x 7632 – (320)2] [16 x 947 – (320)2]
98,176 – 102, 400
r = √[122112 - 102400] [151152 – 102400
r= -4224
√ 19712 x 48752
r = -4224
√ 960, 999424
r = -4224
30999.99
r = -0.136
Having computed the regression analysis
r = -0.136 which revealed that credit policy and debt collection performance FTU bank are
inversely related. Pearson denoted by r2 was used to determine the strength of the inverse
relationship as coefficient of determination explain the percentage of the variance in the
dependent variable {debt Collection Performance}
r = -0.136
r2 = -[0.136]2
r2 = 0.0185
r2 = 1.85%
The implication of Pearson (r2) findings, 1.85% revealed that 1.85% of variance in debt
collection performance is explaining by loan performance. It can then be concluded that 1.85% is
the contribution of credit policy to probability and 98.15% is due to the factors variables not
considered in the study.
30
The implication of the findings is that if loan techniques are strengthened in FTU MFI credit
department then, profitability will probably be accelerated and bad debt will be minimized.
31
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
This included summary, conclusion and recommendations of the study.
5.1 Summary of findings
The main objective of the study was to evaluate to establish challenges facing the MFI in
improving loan performance, to establish the level of profitability in MFI, to establish the
relationship between loan performance and the level of profitability in FTU.
The specific objectives of the study were, to establish loan performance mechanisms used in
FTU, to establish the relationship between loan performance and profitability in FTU. The study
also presented the literature review on the evaluation of loan performance and profitability
levels FTU micro finance. It also discussed the methodology used with included research design,
sampling procedure, data collection instruments and sources of data among others.
5.2 Main findings
Result in table 4.2.5 in chapter four indicated that 166 out of 320 respondents were in Agreement
with loan performance (credit standards credit and collection procedures were being used to
manage its debtors while 154 out of 320 respondents were in Disagreement.
The findings show that majority of the respondents were in agreement that truly FTU
microfinance institution has a loan performance policy in place and it has cost and benefit
implications. Therefore, 154 out of 320 respondents were disagreement with studies conducted
by Van Horne, (1995) which revealed that when credit is offered, accounts receivables or debtors
are created and expected to be collected in the near future and that the debt involves a significant
risk much as they are of economic value which necessitates loan performance in place to
minimize this risk and create more returns on loan and profitability.
32
The result in table 4.24 in chapter four shows that loan performance the dependent variable
revealed that 227 out of 320 respondents were in agreement that FTU has procedures it follows
when evaluating the procedures while 93 out of 320 respondents were in disagreement.
The majority of the respondents agreed that FTU has procedures in place when assessing the
clients and supervision. The implication of the finding strengthened the need to have a basis of
consideration before a debit decision is made. Also results are recommended by Broaklinston
(1997) factors on the challenges financial managers reveals that determining acceptance level of
loan performance to ensure that the organization operates profitably in a difficult task to
managing in finance operations while servicing the debts. Financial institutions dealing in credit
requires debt management procedures that can allow effective loan operations to attain
satisfactory level of profitability.
The study revealed a weak negative relationship [r=-0.136] between loan performance and
profitability in FTU.
Pearson [r2] findings imply that 1.85% of the variance in profitability level is explained by a loan
performance policy and 98.15% is due to other variable not considered under this study. This
implies that, if loan performance policies are strengthen, profitability will probably be improved
or increased in the same direction. The findings are consistent with Pandey (1997) arguments
that a good loan performance policy ensures that debtors are properly managed by focusing at
the major objectives of making a trade of between incremental returns and increment costs,
aiming from credit decision which reduce operating costs and increases profit.
5.3 Conclusion
From the findings, it can be concluded that FTU micro finance employees lenient credit policies
in place to manage its profits. Majority of the respondents agreed that cost ands benefit
implications are being experienced. Profitability was adequate and the study confirmed a week
negative relationship between loan performance and profitability of FTU micro finance
institutions.
33
5.4 Recommendation.
Basing on the study findings and conclusion, the study came up with the following
recommendations.
i. Management of FTU micro finance should address cost and benefit implications by
redesigning its current loan policy so as to minimize cost associated with credit while
maximizing the benefits from it. The loan performance policy that is no be redesigned
should ensure operational consistency and adherence to inform and sound practices; it
should also involve affective initiations analysis, credit monitoring and evaluation.
This is in line with Pandey 5cs measurement parameters. (Capacity condition,
collateral, character and capital) should always be considered when evaluating
debtors.
ii. FTU should strengthen its loan performance procedures/methods debt capacity
technique should continuously be used to ensure that profitability levels are
satisfactory.
iii. Management of FTU micro finance should not be scared of negative relationships
between variables under study, but should rather appreciate the Pearson coefficient of
determination findings 1.85%. Academicians and researchers we also encourage to
investigate more 98.15% which is explained by other variables other than loan
performance.
iv. FTU should appreciate the findings in the relationship between loan performance and
profitability to ensure its continual survival in a competitive finance industry in
Uganda.
5.5 Area for further research
The study was limited to loan performance and profitability levels used in micro fiancé
institutions but more research needs to be done on the following
i. Customer orientation and debt collection performance in macro finance institutions
ii. Total quality management and supervision in micro finance institutions
iii. Customer ability to pay and debt collection performance in micro finance institutions
iv. Credit management and customer satisfaction in commercial banks
34
REFERENCES
1. Akinyi Jane (2009), Role of Micro Finance In Empowering Women In Africa. Africa
executive magazine.
2. Beijuka John (1999), Micro Finance In post Conflict Countries. ILO- General
3. Dan Matovu (2006) Micro Finance And Poverty Alleviation in Uganda School of Global
studies. Goteborge University
4. Hulme David and Paul Mosley (1996), Finance Against Poverty Vol. 1 Routledge
London
5. Ismawan (2000) Real Idea Of Micro Finance
6. Kakuru (2006) Financial Management 3rd Edition
7. Kasente Deborah, Germina Ssemogerere and Mutesasira Leonard (2001) Micro Save
Africa And Uganda Women Finance Trust. Impact of MF on pervert alleviation
8. LIIjefrost Emilia (2005) Fighting Pervert Wirth Micro Finance. The Democratization of
Finance.Uppsala University
9. Mayour Linda (article: 438) Trackling The Downside. Social Capital, Women
empowerment and MF in Cameroon
10. Ngozi G. Ihedure (2002), Women Entrepreneurship And Development. Gendering in
microfinance in Nigeria. Abistate University
11. Lufumpa Leyeka (1999), The Africa Economy
12. PEAP (Poverty Eradication Action Plan (2005-2007/8)
13. Pandey (1995) Finance Management
14. Roth James (1997) The Limits of Micro Credit As A Rural Development Intervention
Manchester University
15. Sida ( Aug. 2005) Supporting Pro-Poor Growth
16. UWFT Uganda Women Finance Trust
17. World Bank annual report (2005) Investing In Poor People And Empowering Them To
participate In Development
18. Yunus Muhammad (1999) Banker To The Poor, the study of Framen Bank, London
19. Micro Finance Institutions (GTZ In Collaboration With Association Of MFI)
20. Micro Finance Banker on regulations, MIFs (Vol. Issue Sept 2001)
35
22. Uganda village project, Generate income in Africa:[email protected]
23. PRESTO. [email protected]
24. Wright G. (1999), Beyond Basis Credit and Savings. Developing New Financial Service
Product for the poor. Eschborn. GTZ
36
APPENDICES
Appendix I
Questionnaire staff and clients of finance trust Ltd Iganga Branch
Dear respondents,
The researcher is a student of Makerere University undertaking a research for a bachelors’
degree in commerce carrying out research on the loan performance and the profitability of micro
finance institutions.
This questionnaire is designed to collect information on the topic in question
Information provided will be purely for academic purpose and will be treated with at most
confidentiality.
I therefore kindly request you to fill this questionnaire
Thank you for your time and cooperation
PERSONAL DATA
1. Age group
Under 20 years Between 21-30 years
Between 31-40 years above 40 years
2. Marital status
Married Single
Divorced Widow
3. Gender
Male Female
37
4. Level of education attained:
Primary Secondary
Certificate Diploma
Degree Other specify……………..
5. Position held……………………..
6. What kind of business are you in dealing in?
Retail trade Service e.g. saloons
Manufacturers e.g. bakery Rearing e.g. poultry
7. How long have you worked with financial Trust/been in business?
Below 2 years 2-4 years
5 – 10 years more than 10 years
Please indicate how much you strongly Agree (SA) Agree (A), Uncertain (U), Disagree (D) or
Strongly Disagree (SD) with the following statements
Abbreviations:
MFI Micro Finance Institution
MF Micro Finance
NUREP Northern Uganda Rehabilitation Programme
PAPSCA Programme for Poverty Alleviation and Social Costs of Structural
Adjustment
PSDP Private Sector Development Programme
NGO’s Non Governmental Organization
38
CGAP Consultation Group for Assistance to the Poor
SECTION A
Challenges facing the MF in improving loan performance
SA A U D SD1. The board has the responsibility to safeguard the interest
of the institution stakeholders2. The board participates in the organization of long term
strategy by critically considering the principle risks to which the organization is exposed
3. The board supervises management in the execution of the approved strategies plan and evaluates the performance of management
4. The board supervises the selection, evaluation and compensation of the senior management term including succession planning for the CEO
5. Finance Trust MF face a challenge of high costs of service delivery with poor infrastructure, regulatory policy issues and the need to develop institutional leadership
6. There is a minimum capital structure standard and cash management standards required in finance Trust obtain a loan
7. Finance Trust MF considers collateral security before advancing a loan to their clients
8. Fixed costs of processing loans of any size is considerable as assessment of potential borrowers regardless of how small the sum of money involved
39
SECTION B
LEVEL OF PROFITABILITY IN FINANCE TRUST MICRO FINANCE
SA A U D SD1. The interest rate charged by finance Trust limited are
calculated on the basis of their financial situations and profitability targets
2. Finance Trust conduct an in depth reflection process that allow stakeholders a fare rate to charge clients best on moderate profitability
3. Operational costs in finance Trust limited affects the level of profitability
4. In order for Finance Trust to make profits, the cost of financial resources (equity, debt, deposits) must be optimized
5. High premium indicates a high profit and profits are a minor driver of interest yield and interest premium
40
SECTION C
Relationship between loan performance and the level of profitability
SA A U D SD1. Microfinance intervention by bank of Uganda produce
better results when design, reporting and monitoring explicitly on key measures of performance
2. High interest rate affects loan performance and level of profitability
3. Close supervision and monitoring affects loan performance and level profitability
4. Failure to recover the credit loan from finance Trust on effective use of the loan, management of the loan and how to settle the balance affects loan performance and the level of profitability
5. Generally one performance help to determine the level of MFIs
Thank you for being part of this research
41