The impact of internal controls on loan defaults in microfinance institutions: a case study of Pride Microfinance Limited Uganda

Abstract

This study aimed at investigating the impact of internal controls on loan defaults in the context of Pride Microfinance Ltd Uganda, a leading MFI in the country. The research project employed a quantitative approach, using both primary and secondary data sources. Primary data was gathered using a structured questionnaire distributed to Pride Microfinance Ltd Uganda Head Office employees. Secondary data, such as financial statements and annual reports, were used to better understand the organization's performance and internal control methods. Python programming language was used to analyze the data that was collected. The study suggests that an integrated approach to improving control environments, risk assessments, control activities, information systems, and monitoring mechanisms will enhance financial stability and reduce the incidence of loan defaults and thus the study recommends Pride Microfinance Ltd Uganda to implement strict credit risk controls and assessments of loans that will probably result in better loan performance. Prior to extending credit, Pride Microfinance Ltd should look out for collateral securities from clients to ensure that credit risk controls are carried out effectively.