Performance of asset-based and cash-flow based loans in Uganda : a case study of Finance Trust Bank Limited

Abstract

This study examined the performance of asset-based and cash-flow based loans at Finance Trust Bank Uganda Limited. The research’s specific objectives were: - to compare the performance of asset-based and cash-flow based loans and to identify strategies that would improve the performance of both cash-flow based and asset-based loans. The researcher systematically selected 100 employees from 7 branches of Finance Trust Bank that are located in Kampala City and thereafter collected data with the aid of a questionnaire. He analysed the data using a Statistical Package for Social Scientists tool to give comparative statistics, such as Analysis of Variance, at a 5% significance level.

The findings of this study demonstrated that cash-flow based loans registered a significantly (p<0.05) higher-performance level in terms of interest charged on the loans, loanable amounts, and the returns on interests. They also registered a significantly (p<0.05) higher level of default when compared to asset-based loans. To improve the performance of asset-based loans, the bank would adopt loan scheduling, improve borrower access to information about loans, as well as computerizing the management and administration of loans. To improve the performance of cash-flow based loans, the management of Finance Trust Bank had to reduce the bureaucratic procedures that frustrated potential borrowers, expand credit lending to various market bases, adopt a computerized loan management system, carry out a proper risk assessment and harmonize interest rates of cash-flow based loans.

This study highlights that Finance Trust Bank experienced better growth in its cash-flow based loan portfolio than it did in its asset-based loan portfolio, a result that was brought by the high demand for these loans and the level of interest that was charged on them. There was still limited access to information by the borrowers about asset-based loans, a factor that contributed to a lower uptake level of these loans. The management of Finance Trust Bank should, therefore, consider carrying out more marketing of its asset-based loans to boost demand.