Credit management and loan recovery in microfinance institution in Uganda, a case of FINCA Uganda limited

Abstract

The study examined the influence of credit management procedures on loan recovery, using FINCA Uganda as a case study. It was guided by the following objectives: to evaluate the influence of credit monitoring on loan recovery, to examine the effect of credit analysis on loan recovery, and to assess the influence of collection procedures on loan recovery at FINCA Uganda. A cross-sectional survey design was employed for the study. The target population was 80 individuals, of which 73 were sampled. Bi-variate analysis was used to examine the relationships between variables. Data was analyzed using the Statistical Package for Social Sciences (SPSS), which generated relevant frequencies and percentages to support conclusions on the study objectives. The findings indicate that FINCA Uganda places strong emphasis on credit analysis as a core component of its lending procedures, with policies regularly revised to remain relevant. Key borrower factors, such as character and repayment capacity, were widely recognized as critical determinants of loan performance, highlighting the importance of thorough client assessment in minimizing default risks. While most respondents acknowledged the necessity of credit analysis before loan disbursement, some expressed doubts, indicating potential gaps in policy enforcement, staff understanding, and communication. FINCA’s comprehensive credit monitoring system was generally acknowledged, although some respondents questioned its effectiveness. Loan officers were commended for consistently notifying clients of outstanding amounts, and compliance with loan approval terms was largely enforced. However, regular visits to assess debtor performance and consistent supervisory review of reports were identified as weak areas. The institution’s loan analysis framework and established debt collection body were recognized as supporting loan recovery, and rigid approval procedures were seen to positively influence repayment. Nonetheless, weaknesses in collection procedures were perceived as contributing to defaults, and while most respondents believed FINCA recovers most loans, doubts remained about the consistency of full recovery. The study recommends strengthening policy enforcement by ensuring that all credit analysis guidelines are consistently applied across all FINCA Uganda branches. It also recommends enhancing staff capacity through continuous professional development programs for loan officers to improve credit management and loan recovery outcomes.