Lade Inhalt...

Credit management and loan portfolio performance in Pride Microfinance Ltd

Doktorarbeit / Dissertation 2019 55 Seiten

BWL - Investition und Finanzierung

Leseprobe

TABLE OF CONTENTS

CHAPTER ONE: INTRODUCTION
1.0 Introduction
1.1 Background to the Study
1.1.1 Historical Perspective
1.1.2 Theoretical Perspective
1.1.3 Conceptual Background
1.1.4 Contextual Background
1.2 Statement of the Proble
1.3 Purpose of the Study
1.4 Study Objectives
1.5 Research Questions
1.6 Research Hypotheses
1.7 Scope of the Study
1.7.1 Time Scope
1.7.2 Content Scope
1.7.3 Geographical Scope
1.8 Significance of the Study
1.9. Conceptual Framework
1.10 Justification of the study
1.11 Operational Definition

CHAPTER TWO: LITERATURE REVIEW
2.0 Introduction
2.1 Theoretical Background
2.2 Credit Management Policies and Loan Portfolio Performance
2.3 Credit Management Procedures and Loan Portfolio Performance
2.4 Collection Methods and Loan Portfolio Performance
2.5 Summary of the Literature Review

CHAPTER THREE: METHODOLOGY
3.0 Introduction
3.1 Research Design
3.2 The study population
3.3 Sample size and selection
3.3.1 Sampling Techniques and Procedures
3.4 Data Collection Methods
3. 4.1 Survey Method
3.4 Data Collection Methods
3. 4.1 Survey Method
3.4.2 Interview Method
3.4.3 Documentary audit strategy
3.5 Instruments of information accumulation
3.5.1 Questionnaires
3.5.2 Interview Guide
3.5.3 Documentary Review Checklist
3.6 Validity and Reliability of Data Collection Instruments
3.6.1 Validity
3.6.2 Reliability
3.7 Procedure of Data Collection
3.8 Measurement of Variables
3.9 Data Analysis
3.9.1 Analysis of Qualitative Data
3.9.2 Analysis of Quantitative Data
3.10 Ethical contemplations

CHAPTER FOUR: ANALYSIS AND INTERPRETATION OF THE FINDINGS
4.0 Introduction
4.1 Response Rate
4.2 Demographic Characteristics of Respondents
4.3 Analysis of specific objectives

CHAPTER FIVE: SUMMARY, DISCUSSION, CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
5.1 Summary of the Study Findings
5.1.1 Credit Management Policies and Loan Portfolio Performance
5.1.2 Credit Management Procedures and Loan Portfolio Performance
5.1.3 Credit Collection Methods and Loan Portfolio Performance
5.2 Discussion of the Study Findings
5.2.1 Management Policies and Loan Portfolio execution
5.2.2 Credit Management Procedures on Loan Portfolio Performance
5.3 Conclusions of the Study Findings
5.3.1 Credit management policies and loan portfolio performance
5.3.2 Credit management policies and loan portfolio execution
5.3.3 Credit Collection Methods and Loan Portfolio Performance
5.4.1 Credit Management Policies and Loan Portfolio Performance
5.4.2 Credit Management Procedures and Loan Portfolio Performance
5.4.3 Credit Collection Methods and Loan Portfolio Performance
5.5 Limitation of the study
5.6 Contribution of the Study

REFERENCES

APPENDICES

DEDICATION

This research is dedicated to: my children; Kirabo Bayiiga Musoke and Kintu Batuma Kitenda Musoke, I love you so much.

ACKNOWLEDGEMENTS

All perfect praises are due to the Almighty God, Jesus Christ the son and the Holy Spirit for the gift of life and protection to me until this material time.

I would like to appreciate my parents; the late Apollo Musoke Serwanja (RIP) and the late Joyce Serwanja (RIP), for having provided me with a firm foundation that I will always build on. May the Almighty God grant them rest in paradise.

I am equally grateful to my supervisors: Dr. Karim Ssesanga and Dr. Paul Malunda Netalisire for their guidance throughout this study and for their comments that made it possible to have this study start off on a focused note.

I also extend my gratitude to the staff of Pride Microfinance Ltd, Nateete Branch together with their for being active during data collection which made report formulation simple and more meaningful. Indeed thank you and God reward you accordingly.

Sincere appreciation further goes to all my lecturers, fellow participants as well as all my friends who guided me throughout this research: I wish you best in all your endeavors.

LIST OF FIGURES

Figure 1: Conceptual Framework

Figure 2: Staff Respondents by Job Position

LIST OF ACRONYMS

Abbildung in dieser Leseprobe nicht enthalten

ABSTRACT

The study was an assessment of the effect of credit management on loan portfolio performance. At Pride Microfinance Ltd, Uganda. Its main emphasis was to examine the effect of credit management policies, credit procedures, and credit collection methods on loan portfolio performance at Pride Microfinance, Nateete branch. The examination utilized a clear study plan on 309 respondents who were chosen from an investigation populace of 1170 respondents. Interviews and closed-ended questionnaires were used to collect both qualitative and quantitative data respectively. The study findings showed that: management policies, procedures as well as collection methods were positively correlated with loan portfolio performance, posting correlation coefficients of .925**, .765**and .578** respectively. The adjusted R square 0.901, implying that 90.1% of the variations in loan portfolio performance could be explained by variations in credit management policies, credit management procedures and credit collection methods for their outstanding balances while keeping other factors constant. The investigation demonstrated that credit management policies have a critical beneficial outcome on loan portfolio performance at Pride Microfinance Ltd, Nateete branch and if the strategies are very much actualized the foundation can almost certainly recoup the loans dispensed prompting a quality loan portfolio. It was additionally demonstrated that credit the board methodology significantly affect advance portfolio execution; in this way it's suggested that the organization ought to guarantee adherence to the techniques through exacting examination and observing of its representatives for better loan portfolio performance Lastly, credit collection methods significantly affect loan portfolio performance therefore, emphasis is needed to be placed on appropriate loan repayment frequency for better portfolio management.

CHAPTER ONE: INTRODUCTION

1.0 Introduction

The thesis of the study established the effect of credit management on loan portfolio performance at Pride microfinance Ltd. A proposal was structured based on three chapters which provided background of the study, literature review and methodology section, and upon approval, a research report was formulated.

1.1 Background to the Study

This section represents historical, theoretical, conceptual, and contextual background to the study;

1.1.1 Historical Perspective

As indicated by Williamson (2000) the historical backdrop of credit management and loan portfolio performance isn't clear. All inclusive, credit the executive is central and its focal points can't be underestimated in any microfinance organizations. It guarantees that clients consent to exchanges engaged with the financial business. The giving of loans has enabled millions of poor in the world to improve on their standards of living and as such, the issue of loan portfolio performance has become critical in many banking institutions all over the world (Prahalad, 2002).

The origin and evolution of credit management can be traced back thousands of years ago. Credit is much older than writing. Krimsky (1988) trace the origin of credit management back to Ancient Mesopotamia, based on the work by Covello (1985). Credit management starts precisely by surveying the credit-value of the client base and his/her business suitability. This is especially significant if the organization broadens some sort of credit line or rotating credit to specific clients. A few variables are utilized as a major aspect of credit management process to assess and qualify a client for the receipt of some type of business credit. This incorporates gathering information on the potential client's present money related condition, including the present credit track record that unveils the character of a client in gathering commitments just as guarantee esteem (Moti, 2012). At the point when the credit management process is complete, the monetary organization, for example, banks has a sensible measure of confirmation that advances allowed to a customer will be paid back inside terms, or that standard least installments will be gotten on layaway account adjusts.

In Africa banks and other money related foundations have offered significant opportunities to many people particularly the business entities in order allow smooth operation of the business. However, many financial institutions have faced challenges on manage their loan portfolios due to the existence of weak managerial policies Shekhar, (1985). The failure of manage their portfolios has created a financial gap between financial institutions and many individuals who want borrower money to smooth operation of their business.

In Uganda, different micro- finance institutions use various loan assessments indicators such as credit score and loan screening. Loan screening is met to ensure that the loan is advanced to capable and right customers such that the bank avoids loses from debtors who might fail to refund back the money borrowed (Sarah, 2011). In spite of many financial institutions in the country, there was limited and scattered information on what was taking place in the microfinance industry of the country.

1.1.2 Theoretical Perspective

The study was guided by the Markowitz Portfolio theory. The theories acknowledge that investors work to intensify returns for a particular element of danger or expect to restrict chance for a particular element of foreseen return. Their portfolio comprises of benefits and liabilities, this is on the grounds that the connection between the profits and resources is extremely vita (Elton, 2009). In this case bank managers consider their investment as a probability distribution of expected returns for a given period of time and estimate their pay offs basing on the variability of expected returns. The investigation depended on the distinction between dimension of expected return and dangers since supervisors in pride microfinance Ltd measure the dimension of their normal profit esteems based for their credit the board arrangements, strategies and accumulation techniques (Malkiel, 2012).

1.1.3 Conceptual Background

The examination was contained two essential elements credit management and loan portfolio. Brealey (2003) acknowledge credit management as procedures and frameworks grasped by a firm to ensure that they keep up a perfect element of credit and its feasible organization. It is a piece of cash related organization including credit examination, FICO score, credit portrayal and credit uncovering.

Credit management policies, strategies just as accumulation techniques were the fundamental factors which comprised credit management. The investigation depended on how financing cost approaches impacted money related execution of pride smaller scale account, how the credit collection methodology in wording exchanges costs, gathering strategies, and legitimate activities included influenced loan portfolio performance.

Then again, Loan portfolio alludes to the aggregate sum of cash given out in various credit items, to the various kinds of borrowers. It was measured in terms of portfolio at risk (Comptroller's hand book, 1998)

1.1.4 Contextual Background

Pride microfinance is one of the dynamic organizations in credit expansion to the whole network in Uganda. The establishment has the vision to the main supplier of client driven budgetary answers for the social and financial improvement of business visionaries in Uganda. It loans to people and to solidarity gatherings. In any case, a report on the execution of the foundation in 2016 demonstrated that higher credit misfortune arrangement represented a decrease in its gainfulness in 2015. It was in this setting the specialist examined the impact of credit management on loan portfolio performance at Pride Micro-Finance Ltd, Nateete branch (Pride Microfinance Annual Report, 2016).

1.2 Statement of the Problem

A good loan portfolio performance is important to reduce financial risks and enhance the value of the firm and shareholder wealth in any organization (Simpson, 2002). However, loan portfolio performance at pride microfinance ltd had proven difficult. Evidence in some of its branches such as Nateete branch showed that the institution faced problems of increasing number of non-performing assets; high default rates, volume of loans in arrears, and decreased stakeholder dividends (Pride Micro-finance Annual Report, 2015 ).

The institution had established a very strong senior management staff with adequate professional background and experience in credit management, ensured use of Credit Reference Bureaus (CRB) to get information and make sound credit management procedures, and as well as provided incentives to the staff to motivate them and ensure effective loan recovery (Pride Microfinance Annual Performance Report, 2017). Despite the institution’s efforts, there was still a problem of high portfolio at risk, increased loans in arrears, and higher rates of default among clients. According to the comprehensive financial statement of pride microfinance 2018, it was revealed that a higher non-performing loans in “000” shillings of 3732118 and 3917158 for 2017 and 2016 respectively had been recorded, an increased interest in suspense from 585, 762 to 6274040 in 2016 and 2017 respectively, and sum of bad debts written off had increased from 1696115 to 2690134 in 2016 and 2017 respectively and this accounted for a decline in the profitability of the institution in 2018. This was attributed to lack of adequate credit management systems, poor management procedures, higher levels of staff turnover and poor loan collection methods (Pride Micro-Finance Annual Report, 2016). If pride microfinance could not address some of these challenges, it would result to insolvency or bankruptcy by the institutions and as such an investigation was needed to examine the impact of credit management on loan portfolio performance at Pride Micro-Finance Ltd.

1.3 Purpose of the Study

The study established the effect of credit management on loan portfolio performance at Pride Microfinance Ltd.

1.4 Study Objectives

(i) To examine the effect of credit management policies on loan portfolio performance at Pride Micro-Finance Ltd, Nateete branch.
(ii) To determine the effect of credit procedures on loan portfolio performance at Pride Micro-Finance Ltd, Nateete branch.
(iii) To examine how credit collection methods affected loan portfolio performance at Pride Micro-Finance Ltd, Nateete branch.

1.5 Research Questions

The study addressed the following questions;

(i) What is the effect of credit management policies on loan portfolio performance at Pride Micro-Finance Ltd, Nateete branch?
(ii) What is the effect of credit management procedures on loan portfolio performance at Pride Micro-Finance Ltd, Nateete branch?
(iii) What is the effect of credit collection methods on loan portfolio performance at Pride Micro-Finance Ltd, Nateete branch?

1.6 Research Hypotheses

The following hypotheses were developed for empirical testing;

Credit management policies have a significant effect on loan portfolio performance in Pride Micro-Finance Ltd, Nateete branch.

Credit management procedures have a significant effect on loan portfolio performance in Pride Micro-Finance Ltd, Nateete branch.

Credit collection methods have a significant effect on loan portfolio performance in Pride Micro-Finance Ltd, Nateete branch.

1.7 Scope of the Study

1.7.1 Time Scope

The examination was based on data from 2015-2018. This was the period when there institution having high rate of bad debts written, increased loans in suspense and higher rates of non-performing loans recorded. (Pride Micro-finance comprehensive financial statement, 2018).

1.7.2 Content Scope

The study was limited to credit management with emphasis on effects of credit management policies, procedures and collection methods which made up the independent variable. Focus was also placed on loan portfolio performance based on the indicators of portfolio at risk and portfolio at growth.

1.7.3 Geographical Scope

This study was limited to Pride Micro-Finance Ltd., Nateete branch, Masaka Road, in Nateete Kampala. This area of study was preferred because of declining loan portfolio performance even amidst the institutions efforts to ensure effective loan management at the branch. Therefore it was important to carry out the study at Nateete branch in order to put in place effective credit management systems that could enable to maximize value on loans given out to borrowers.

1.8 Significance of the Study

The study findings are significant in the following ways;

The study provided insights to policy analyst in Pride Microfinance ltd and government to formulate credit management strategies that enhanced their loan portfolio. The accomplishment of the study expanded knowledge in the financial industry which guided other researchers who wished to further studies in the field of the banking industry.

1.9. Conceptual Framework

Figure 1: Conceptual Framework

Credit Management (IV) Loan Portfolio Performance (DV)

Abbildung in dieser Leseprobe nicht enthalten

Source: Author (2018)

1.10 Justification of the study

The issue of giving out credit especially to clients within the informal sector comes with a lot of challenges as asymmetry of information is very high coupled with lack of collateral to secure loans. The current credit management at Pride microfinance ltd is not well diversified or efficient, and therefore is not able to completely satisfy the differing demands of the market in Nateete branch (Pride Micro-Finance financial report, 2014). This made it important for pride microfinance Ltd, Nateete branch to put in place effective credit management systems that seek to maximize value on loans giving out as risky assets to their clients.

1.11 Operational Definition

In this study terms hereunder refer to;

Credit Management Policy: To frameworks set up by top organization that administer the association's credit division and researches execution in the expansion of credit benefits against set down methodology (Allen, 2010).

Credit Terms: To the conditions which guide the firm or the bank or organization in offering funds to prospective clients (Allen, 2010). They refer to the stipulations under which a monetary organization stipends credit to its clients.

Credit portfolio: To the aggregate sum of cash given out as advances in various advance items, to the various sorts of borrowers. (Kateregga, 2017).

CHAPTER TWO : LITERATURE REVIEW

2.0 Introduction

The literature review was done thematically in the light of the objectives of the study. In addition to the introduction and thematic review.

2.1 Theoretical Background

The study was guided by the Markowitz Portfolio theory. The theories acknowledge that investors work to intensify returns for a particular element of danger or expect to restrict chance for a particular element of foreseen return. The portfolio theory ought to incorporate the two resources and liabilities; this is on the grounds that the connection between the profits and resources is extremely foremost (Elton, 2009). For this situation bank supervisors consider their venture as a likelihood conveyance of anticipated returns for a given timeframe and gauge their compensation offs basing on the changeability of anticipated returns. The investigation depended on the distinction between dimension of expected return and dangers since supervisors in pride miniaturized scale money ltd measure the dimension of their normal profit esteems based for their credit the executives strategies, methodology and gathering techniques. Portfolio theory therefore guided this study in determining the effectiveness of credit management policies, procedures and collection methods on loan portfolio performance. If credit management is effective, the loan portfolio performance through low transaction cost was likely to assist in measuring portfolio at risk and growth.

2.2 Credit Management Policies and Loan Portfolio Performance

Credit management involves establishment of policies that promote effective use of organization’s fund (Braunstein 2002). Pride microfinance institution has a number of credit management policies that influence the financial performance and in 2015, its gross interest income grew by 10% to Shs 25 Billion compared to 2014 while the loan portfolio increased by 16% to Shs 145 Billion compared to Shs 126 Billion. It was not clear whether institution’s impressive performance was influenced by the credit management practices (Pride Micro Finance Annual Report, 2015).

Pride Microfinance Ltd had troubles in the budgetary administration arrangement mostly because of the credit hazard. The establishment had misfortunes coming from borrowers' inability to reimburse advances according to legally binding terms (Pride Micro Finance Annual Report, 2016). Subsequently it was especially basic for an examination to be directed so as to deal with the credit strategies that adequately affect th manageability of the bank.

A study by Omwando (2017) established factors that determined performance of commercial banks in Kenya. Empirical results from the study indicated that large banks recorded higher profits compared to those with higher regulatory adequacy capital ratios. It was not clear whether the findings are portable to Pride Micro-Finance of Uganda.

In another investigation by Karugu (2015), discoveries demonstrated that credit evaluation, obligation accumulation and credit chance administration impacted returns. The examination anyway did not address the issue of advance portfolio quality and in the event that it was influenced by credit the board strategies and systems.

2.3 Credit Management Procedures and Loan Portfolio Performance

As per Bessis (2015) banks need sensible methods for endorsing new credits and in the meantime have new methods for broadening the current advances. Nonetheless, such systems need accentuation to guarantee appropriate investigation of customers so as to assume responsibility for the dangers of advance dispensing. It is contended that systems of showing money related soundness are significant (Hand, 1998). The financial institutions gather data in order to develop numerical scores for their applicants (Jemal, 2002). However, according to Crook (2007) factual models to change pertinent information into numerical measures that guide credit choice have been criticized by many scholars.

Al Amari (2002) highlights the importance of using credit rating assessment models as part of assessing credit risk, he argues that there is no ideal technique, implying that one kind of rating model works for a particular budgetary organization but neglects to work in others. He instead thinks on how different variables utilized as part of deciding the reliability of a client would be used as a means of factual method.

Muturi (2016) evaluated the impact of credit procedures on loan portfolio in store taking microfinance banks in Kenya. This examination tried to discover how credit procedures influenced advance reimbursement. The specialist additionally utilized inferential measurements with the assistance of straight relapse models. The model set up the impact credit policy had on the reimbursement of advances. From the discoveries, the investigation found that the terms of credit, credit measures, gathering strategy and credit approach affected the institutions.

Nyakeri (2012) carried out a research on how practices relating to management of credit affect financial performance in SACCOS in Nairobi. The research specific objectives included the effect of credit approval process, loan portfolio, credit score and the Risk analysis on the profitability of the MFIs. According to the findings the credit risk analysis improved the firm’s profitability, loan portfolio and returns of the MFIs.

The study by Karekaho, (2009) whose purpose behind existing was to develop the association between credit portfolio management and performance of Microfinance Institutions (MFIs) in Wakiso district, Uganda. The results show that there were vital associations between development portfolio masterminding, client screening, portfolio control and the performance of the MFIs. Anyway this investigation just measure performance utilizing monetary markers, along these lines this paper proposes and an examination on credit management policies, procures and collection methods employed by pride microfinance ltd Kateregga (2017) looked at the impact loan fees had on resource quality execution of Ugandan business banks. The examination discoveries demonstrated despite the fact that credit methods and guidelines were being pursued there was still some advance reimbursements defaults that influenced credit chance and consequently benefit. The examination anyway embraced one arrangement of credit hazard the executives rehearses and overlooked the rest.

2.4 Collection Methods and Loan Portfolio Performance

Collection efforts determine the actual collection period of the loan (Nyawera, 2013). It is the supervision of the credit loans. The policy refers to the methods an institution or firm follows to obtain payment of past due. It may involve sending a letter to such clients when they are for instance, ten days past due date, it also involves court actions depending on the terms and conditions agreed upon. Collection methods are needed to enable the growth of the portfolio through reduction of bad debts.

Exertion may incorporate joining compulsory reserve funds driving underwriters to pay, appending insurance resources, courts prosecution (Stegman, 2003). Small scale money organizations may send a letter to such people (borrowers) when state ten days slip by or telephone calls and if installment isn't gotten with in thirty days, it might turn over the record to a gathering office (Stegman, 2003).

As indicated by Ngomjo (2013) in her investigation on impact of Credit Management System on Loan Performance: Empirical proof from banking part in Kenya discovered that credit terms defined by the MFIs do influence advance execution; the inclusion of credit officers and clients in detailing credit terms influences advance portfolio execution. Financing costs charged negatively affected the execution of the credits, the higher the loan costs the lower the advance portfolio execution. Gathering arrangements received by MFIs affected advance portfolio execution, stringent approach greatly affected credit execution, and the merciful strategy had an impact however was not as incredible as that of stringent strategy.

2.5 Summary of the Literature Review

Literature suggests that policies of credit management can affect portfolio performance, since the credit management focuses on the collection and control of payments to customers. However, the literature falls short on highlighting what elements of the credit management policies should be given emphasis and moreover, the literature ignores the assumption that it may not only be about the creation and development of credit management policies but rather about seeking the value meaning and significance of credit management policies so that they can have a bearing relationship on the portfolio performance. It was this gap that the study ought to explore.

The literature reviewed highlights the role of credit management procedures through credit management policies and methods in ensuring better portfolio performance at Pride microfinance ltd, Uganda and having highlighted the gaps in the available literature, what was then left was to come up with a plan on how the information was collected. Hence the methodology utilized in the gathering of data was discussed in the next chapter.

CHAPTER THREE : METHODOLOGY

3.0 Introduction

This chapter presents the methodology that was used in the study at Pride microfinance ltd Uganda, a case of Nateete branch.

3.1 Research Design

The study adapted a cross-sectional structure that alludes to the sort of research plan where information can be gathered from various respondents at a solitary point in time (Kothari, 2003). Under the plan, subjective and quantitative methodologies were utilized. The quantitative technique was utilized to gather information on quantifiable factors while subjective strategy was utilized to acknowledge factors that couldn't without much of a stretch be measured. The design was preferred as it was cheap, required use of minimal resources, and data collection was simultaneously from all the respondents at a single point in time. It also enabled the researcher to triangulate information from study questionnaires and interviews thus yielding meaningful information on the subject matter.

3.2 The study population

The accessible population for the is study was categorized as credit supervisors (6), finance managers (1), operation managers (2), internal auditors (1), loan officers (15) and clients (1145) of Pride microfinance ltd, Nateete branch. The population provided information required for the study.

3.3 Sample size and selection

Sample size was determined with the help of Krejcie and Morgan (1970) Table as cited by (Amin, 2015). Using the Table 1 below, the sample size in the study was 309 respondents.

Table 1 . Population, sample and sampling techniques

Abbildung in dieser Leseprobe nicht enthalten

Source: adapted from Pride Micro-Finance report, (2017)

[...]

Details

Seiten
55
Jahr
2019
ISBN (eBook)
9783668953994
Sprache
Deutsch
Katalognummer
v483526
Note
Schlagworte
credit pride microfinance

Autor

Teilen

Zurück

Titel: Credit management and loan portfolio performance in Pride Microfinance Ltd