Credit Appraisal and Approval Procedures and Financial Performance of Microfinance Institutions in Central Uganda.

Abstract

Purpose: This study aimed to evaluate the impact of credit appraisal and approval procedures on the financial performance of microfinance institutions (MFIs) in Central Uganda.

Objectives: The research sought to (i) analyze the credit appraisal and approval procedures employed by MFIs, (ii) examine the perceptions of credit staff towards the existing credit appraisal and approval procedures in MFIs in Central Uganda, and (iii) assess the relationship between credit appraisal and approval procedures and the financial performance of MFIs in the region.

Methodology: Employing both positivist and interpretivist approaches, the study surveyed 41 MFIs across Central Uganda.

Findings: The research revealed a widespread use of client appraisal and approval procedures in credit management among MFIs, highlighting their importance in mitigating credit risk. Notably, credit standards were found to account for only 17.3% of the variations in the financial performance of MFIs. Additionally, no significant relationship was identified between credit appraisal and approval procedures and the financial performance of MFIs.

Recommendations: It is recommended that MFIs should focus on enhancing their credit standards to improve financial performance. This adjustment is critical for strengthening their role in the economic development of Central Uganda.