Analysis of loan interest repayment at DFCU Bank Uganda Limited

Abstract

This study examined loan interest repayment at DFCU Bank Uganda Limited; The study was premised on three objectives; to determine the factors influencing loan interest repayments at DFCU Bank Uganda Limited, to determine loan interest repayment challenges among clients at DFCU Bank Uganda Limited and to suggest ways of improving loan interest repayment at DFCU Bank Uganda Limited. The study employed a cross-sectional and descriptive research with a mixed study approach which involved collecting numerical data from 291 DFCU customers and interviewing 5 key informants (Bank staff). Quantitative Data was analyzed using the statistical package for social science (SSPS Version 25) while qualitative Data was analyzed using Atlas ti. The study found among factors influencing loan interest repayments among DFCU Bank customers. Customers generally find DFCU Bank's loan terms clear and understandable (mean = 3.67, SD = 1.38) and appreciate timely and transparent communication regarding interest rates and repayment schedules (mean = 4.33, SD = 0.75). Incentives for timely repayments are perceived positively (mean = 4.00, SD = 0.821), as are financial education programs that enhance understanding of loan obligations (mean = 3.83, SD = 0.75). Bank customers at DFCU Bank identified several challenges related to loan interest repayment. These include that they frequently struggle to understand the repayment options available (mean = 4.07, SD = 0.64) and face disruptions from external economic factors (mean = 4.12, SD = 0.85) and personal financial emergencies (mean = 3.87, SD = 1.13). They perceive that DFCU Bank's debt recovery strategies may not effectively address repayment challenges (mean = 3.23, SD = 1.22), and their limited financial literacy (mean = 3.19, SD = 1.44). Therefore, the study recommends that DFCU bank should prioritize asset quality improvement by monitoring loans throughout their lifecycle, identifying deviations from approval conditions, and taking corrective action. Customizing loans for specific businesses and issuing timely breach letters to default customers are also recommended. Digital solutions should be used to make loan payments easier for customers, enabling real-time monitoring of loan performance and efficient communication. Banks should also consider borrower-specific factors, such as business model, industry challenges, and external influences, to tailor their approach. This holistic view of borrowers ensures better risk management and promotes a positive lender-borrower relationship. Investing in a strong digital infrastructure can improve overall loan management.