Non-performing loans and financial performance of microfinance institutions in Rwanda. case study of Umurenge SACCO (2016-2018)

Abstract

This research entitles the Non-Performing Loans and Financial Performance of Microfinance Institutions in Rwanda and was guided by the following objectives: to examine the effects of interest rates on financial performance of Umurenge Sacco, to examine the effects of loans size on financial performance of Umurenge Sacco, to determine the effects of repayment installments on financial performance of Umurenge Sacco, The study adopted a descriptive research design. The population under this study consisted employees of Umurenge Sacco of credit department and finance totaling 25 potential respondents which took randomly. The instrument of the study was self made (questionnaire) and a set of questions was formulated. The findings show that the change of one standard unit on effect on low level of savings will result in a change of 0.056 standard unit in the financial performance, the change of one standard unit on low supply of loan will result in a change of -0.092 standard unit in the financial performance, the change of one standard unit on effect on insufficient competition will result in a change of 0.998 standard unit in the financial performance, about the effects of loans size on financial performance of Umurenge Sacco, the findings shows that the standardized coefficients for each technology and it reports that the change of one standard unit on effect on profitability will result in a change of 0.396 standard unit in the financial performance, the change of one standard unit on effect on economic development will result in a change of 0.520 standard unit in the financial performance, the change of one standard unit on effect on loan repayment will result in a change of 0.053 standard unit in the financial performance, about the effects of repayment installments on financial performance of Umurenge Sacco shows the standardized coefficients for each technology and it reports that the change of one standard unit on facility in repayment will result in a change of 0.449 standard unit in the financial performance, the change of one standard unit on quick repayment will result in a change of 0.237 standard unit in the financial performance, the change of one standard unit on Credibility opportunity will result in a change of 0.319 standard unit in the financial performance. Nonperforming loan ratio of Umurenge Sacco Nyarugenge branch is 1.5% in 2016, 5% in 2017 and 2.9% in 2018. Kabusunzu branch has 6.5% in 2016, 13% in 2017 and 8.4% in 2018; Nyabugogo Branch has 2.4% in 2016, 11.3% in 2017 and 9.1% in 2018.The researcher recommended by saying that Umurenge Sacco should credit for equity financing instead of debt financing if it wants to improve on its leverage. This involves funding growth through retained earnings and issuing of shares. The study also recommends that loan approval and monitoring procedures should focus on the borrower's cash flow and ability to repay in an effort to improve the quality of the loan assets and mitigate future allowances for loan losses. All the relevant data was analyzed and evaluated by using primary and secondary data and the results was interpreted accordingly.