Credit policy and the management of loan defaults in microfinance institutions

Abstract

This study sought to examine the contribution of credit policy on the management of loan defaults in FINCA Uganda Kampala branch as the case study. Micro Finance institutions in Uganda have not been performing quite well due to poor management by the officials despite of the credit policies in place. The study is expected to contribute to the body of knowledge necessary for improving quality of services through effective credit policies like credit terms and collection efforts where proper management is involved. The objectives of this study were; to find out the contribution of credit standards and the management of loan defaulters in FINCA (U); to find out the contribution of credit terms and the management of loan defaulters and the to find out the relationship between collection efforts and the management of loan defaults in FINCA (U). The study was a cross-section descriptive study which employed quantitative and qualitative approaches to analyze data. A sample of 52 clients from FINCA (U) Kampala branch in Central Uganda was studied. Qualitative data was collected using semi-structured questionnaires and observation methods and found out that better credit policies have a positive effect on the management of loan defaults in Micro Finance Institutions. In this study, the researcher recommended that managers need more accurate and reliable policies for the better management of loan defaults like the loan policies.