Effects of credit risk management on microfinance institutions loan portfolio performance in mpigi District.

Abstract

This study analysed the effect of credit risk management on the performance of loan portfolio in UGAFOD Micro Finance Ltd, Mpigi Branch. Specifically, the study reviewed the effect of credit risk assessment on loan portfolio performance, the effect of credit monitoring on loan portfolio performance and the effect of credit risk control on loan portfolio performance in UGAFOD Micro Finance Ltd, Mpigi Branch. The study used a cross – sectional research design on a sample of 360 respondents got from a total population of 11,750 clients. Data was collected by use of questionnaire, interview guide, focus group discussions and observation and it was analysed both quantitatively and qualitatively. The study findings revealed that credit risk assessment affects the performance of the loan portfolio as it reduces the chances of loss by the bank. Credit monitoring affects loan portfolio performance however, this has to be continuous, the bank does not need to wait to begin monitoring when the client develops signs of inability to repay. In credit risk management, credit risk control affects loan portfolio performance since; administering the credit facility ensures orderly and full payment which helps the clients to be able to fulfil their repayment requirements. The study concludes that there is need to find away to improve service delivery through lower interest rates, extended payback period and flexing of the strict credit risk management conditionality, product differentiation, customer segmentation and improved information technology for more people to access the institutions services for improved living standards. The study recommends that; banks need to strictly assess their clients to eliminate Non Performing Assets. Credit monitoring should be vigilantly implemented for better performance of the loan portfolio. Credit risk control needs to be fully implemented such that clients do not forfeit their obligations to the banks.