Causes and impact of nonperforming loans on beneficiaries’ economic conditions in Umwalimu SACCO: a case study of Muhanga branch in Muhanga district (2009-2013).

Abstract

The study examined the Causes and Impact of Nonperforming Loans on Beneficiaries’ Economic Conditions in Umwalimu SACCO with a Case Study of Umwalimu Sacco in Muhanga Branch., particularly in Muhanga District, has reportedly recorded a significant number of nonperforming loans among its beneficiaries. Consequently, it was observed that loan borrowers’ economic conditions have suffered much as a result of loan borrowers failing to pay off their loans. This problem continues affecting both parties; the USACCO and the beneficiaries. Maximally 286 respondents from USACCO including teachers participated in the study. The specific objectives of the study were (a) to find out the causes of nonperforming loans in USACCO in Muhanga District, (b) to examine the impact of nonperforming loans on beneficiaries’ economic development in UMWALIMU SACCO, and (c) to suggest strategies to alleviate the problem of nonperforming loans in USACCO in Muhanga District. The study findings were used to answer key research questions, namely; (a) what are the causes of nonperforming loans in USACCO /Muhanga Branch? (b) what is the impact of nonperforming loans on beneficiaries’ economic conditions in USACCO/ Muhanga Branch? The study hypothesized that there would be a significant correlation between the impacts of nonperforming loans and economic conditions of the loan borrowers. The study results indicated that 33.3% of respondents reported that inexperience and lack of entrepreneurial knowledge and skills of loan borrowers affected greatly the use of the granted loan and was the cause of nonperforming loans. Still, 15.1 % of respondents reported challenge of changing USACCO’s credit policies, while 12.9 % of respondents reported weak loan portfolio management by USACCO staff, and 7.5% of respondents reported natural calamities as one of the key causes of nonperforming loans. Conversely, the findings indicated that 89.2% of respondents reported that failure of paying off borrowed loansis a barrier to the improvement of the beneficiaries’ welfare and economic development in various activities like farming activities. Only 6.5 % of respondents reported that the loans received cannot change anything in their economic conditions. Still, 20.4% of respondents reported that nonperforming loans could lead to USACCO members to suffer the lossquality service delivery. The study also revealed a relatively weak positive relationship (r = 0.124, p = 0.037<0.05) between nonperforming loans and economic conditions of beneficiaries, the coefficient of determination was low, being 0.0153, which simply implies it was only nearly 2% level of nonperforming loans affecting beneficiaries’ economic conditions. Practical recommendations were made by the researcher to government bodies in charge of making financial policies, loan-lending-financial institutions, Umwalimu SACCO in Muhanga district, and loan borrowers at large.