The effect of credit management policy on the performance of loan portifolio in microfinance institutions

Abstract

This study assessed the effect of credit management policy on loan portfolio performance of Uganda Finance Trust. The specific objectives of the study were: To examine the contribution of credit evaluation on loan portfolio performance, To establish the impact of approval process on loan portfolio performance and To establish the effect of funds disbursement process and it requirements on loan portfolio performance The study adopted the case study design with quantitative and qualitative research techniques. A total sample size of 39 respondents from Uganda Finance Trust was used. Self-administered questionnaires and face to face interviews were used to collect data. Data was coded and later processed and analyzed. From the study it was revealed that, that Credit evaluation determines credit worthiness, it helps financial institutions in determining the loan size and has also enabled effective risk identification. It was further found out that credit evaluation can also help the institutions in determining the character of a potential debtor, it contributes a lot in assessment of the loan review function and achieving effective performance, it was discovered that approval process helps the officers in charge of the credit management system in rating responsibility, it can also enable financial institutions in managing their portfolios and also determines reliability of approval results. It was exposed that funds disbursement is important in the management of credit because they ensure that the bank has proper documentation, it ensures that money is not availed until all approvals and documentation requirements are met and more to that effective performance of the loan portfolio is assured if all conditions for disbursement are fulfilled. Finally, it was recommended that all bank officers must be subjected to training because they may be more objective and experienced but they may be less sensitive to subtle changes in the borrower’s condition, and their ratings changes may be less timely. It was also recommended that the Bank management should maintain loan approval process in order of effectively determine the ability of the borrower to pay back the loan.