EFFECTS OF CREDIT MANAGEMENT POLICIES ON PORTFOLIO MANAGEMENT BY MICRO FINANCE INSTITUTIONS; A CASE STUDY OF UGAFODE LTD

Abstract

The study investigated credit policies and portfolio management by microfinance institutions, taking UGAFODE as the case study. The objective of the study was to examine the effectiveness of lending policies on portfolio management and the effectiveness of loan recovery policies on portfolio management. The study took a case study research design where both qualitative and quantitative methods of data collection and analysis were used. Data was collected using questionnaire and interview guide. Both descriptive and inferential statistical techniques of analyses were used. The study revealed that there are good lending policies used by MFIs. But even when it is so, portfolio growth has remained low. This is because some MFI officials do not adhere to the policies put in place by board members and top management. As a result even those who would not qualify for the loans, either their businesses are not clear or their past payment records are not verified, end up getting loans and eventually fail to pay back. The findings further revealed that MFIs have good loan recovery policies, but loan recovery rate has remained low. The problem of poor loan recovery is created by the fact that some clients who borrow get favors from loan officers even when they do not meet the loan requirement. This makes them even to think that they will still get favors and their loans will be written off. This makes loan recovery a major problem. The study concluded that much as there are good lending and loan recovery policies put in place by MFIs in management of portfolio growth, the study concluded that loan portfolio has remained at risk because not all clients that borrow are capable of paying back. The study recommends that strict rules and regulations be intensified to make the staff compliant with lending and loan recovery policies. This will improve on the portfolio growth of the MFIs.