The role of government in the performance of microfinance institutions; case study: Mbarara Pride Microfinance

Abstract

This study established the role of government on the performance of microfinance institutions of pride microfinance institution. The objectives of the study were to the effect of financial support on performance of MFIs, to assess the effect of government policies on the performance of MFIs and to assess the effect of governments political environment on the performance of microfinance institutions. The study employed a case study design using a sample size of 48 respondents. The researcher used both purposive and simple random techniques to select respondents. Questionnaires and interviews were used in the collection of data. The findings of the study were that few microfinance institutions are currently sustainable, and they continue to rely on subsidies. MFIs that are now sustainable have previously benefited from large amounts of subsidies. The success stories in microfinance show that subsidies are necessary for start-up investment and network building and development of innovations as a public good, in particular to define insurance schemes or to fill the gap of missing financial markets. Regulation and supervision by a government agency also serves as an external governance mechanism for many MFIs, especially for those who accept deposits. Deposit-taking institutions have additional stakeholders. External governance mechanisms, specifically political environment and rating by independent agency, are not effective mechanisms of control. The study concluded that the presence of good governance improves depth and breadth of outreach as well as sustainability. The study recommended that Because of the complexity of regulating microfinance institutions, some "rules of the game" should be disseminated and implemented beyond the strict enforcement of the regulatory frame. To protect the clients and to strengthen the institutions, microfinance must have a clear juridical and regulatory framework. External controls should be enforced to avoid political intrusion, which continues to endanger some microfinance institutions.