Evaluation of effectiveness of group lending in commercial Banks in Uganda: A case of Centenary Bank Mapeera Branch in Kampala

Abstract

This study was conducted to evaluate the effectiveness of group lending in commercial banks in Uganda, a case of centenary bank, Mapeera branch. The study examined the characteristics and motivations of group borrowers at centenary bank, Mapeera branch. It also investigated the loan repayment performance of the banking sector among groups at centenary bank, Mapeera branch. It also established how group lending policies after the non-performing loans among commercial banks in Uganda. A sample of 77 respondents was used for this study who comprised of 67 group borrowers and 10 loan officers. The findings indicate that the characteristics and motivations of group borrowers affect the group lending methodology in the banking sector. The study indicates there is no relationship between repayment and the desire to be in good terms with group members. The respondents were promised future and bigger loans after a successful repayment. The lending policies were found to be beneficial to the credit department by guiding the group lending process and it brings uniformity with the bank network. Insuring the loan portfolio and stopping advancement of loans to risky sectors are some measures in mitigating risk. The study indicates that lending policies and levels of non-performing loans are related. The study recommends that the central bank should provide strict lending policies based on the prevailing economic environment as this will ensure uniformity in administration of credit facilities. Bank staff should be given occasional training to equip them with relevant skills in order to reduce on levels of non-performing loans among commercial banks. Banks should encourage group selection but discourage relatives from forming groups. Saving mobilization can be used to expand the financial base of commercial banks and also to enhance repayments