Credit policy and loan recovery in microfinance institutions: a case study of the Finca Uganda Masaka branch

Abstract

This study was based on Credit policies and loan Recovery of Micro finance institutions, a case study of FINCA-Uganda with the purpose of establishing the relationship between Credit policies and loan Recovery. The study objectives included, to establish the effect of existing credit policies in FINCA, examine how loans are recovered and to establish the relationship between Credit policies and loan recovery. The research methodology adopted descriptive research design, where both qualitative and quantitative approach was employed to gain an exhaustive understanding of credit policy and loan recovery in MFIs while quantitative design was used to evaluate facts from the field. These were appropriate because data was easily analyzed using frequency counts and percentages derived from questionnaires and interviews which were presented in statistical tables. The study population included the management, credit officers and clients of the branch and a sample size of 36 respondents was used. The findings indicated that FINCA Uganda Ltd, Masaka branch used customer particulars for tracking purposes as one of its credit controls when issuing its loans to customers. The findings also indicated a positive significant relationship (r = 0.727) implying that credit policies affects the loan Recovery level of FINCA Uganda Ltd by a magnitude of 72.7%, implying that if credit policies are not clearly designed could negatively impact on the performance of Micro finance institutions in terms of Loan Recovery. The following recommendations were suggested; the organization should enhance their collection policy by adopting a more stringent policy for effective loan recovery, enhance their client appraisal and also enhance their credit risk control, this will help in decreasing default levels as well as their non-performing loans. The recommendations if taken into consideration will build up the efficiency of credit policy towards achieving the set objectives hence enhancing loan recovery