Institutional management policies and loan recovery by Micro-Finance Institutions (MFIs) in Uganda. A case of FAULU Uganda

Abstract

This study ought to examine the relationship between Institutional Management Policies and Loan Recovery. in FAULU Uganda. Data was collected from Faulu clients and employees using two sets of semi-structured questionnaires. A focus group discussion was also held with a group of Faulu clients. The data were analysed using frequency tables, charts and graphs. SPSS was to analyse the correlation and regression relationships of the study variables of institutional management policies and loan recovery. The findings of the study show that there is a positive relationship between institutional management policies and loan recovery. The results revealed that 77.6% of the loan recovery is brought about by institutional management policies. Institutional policies regarding product design came out the strongest in affecting loan recovery. It is therefore recommended that MFIs need to review the products they offer to their clients to ensure they meet the clients’ needs. The policy of increasing loan size progressively with repeat customers can increase loan recovery. Clients being aware of the policies will compel them to comply and thus increase loan recovery thereby minimizing losses to the MFI. Loan Officers of the MFIs play a big role in enhancing loan recovery if they explain the institutional policies to the clients and comply with them. This minimizes the losses caused by high non-repayment rates that weaken the microfinance institutions capital base and profitability. A suggestion for study further is therefore proposed in the area of business training for MFI clients as a strategy towards minimizing client business failure.