Lending rates and performance of microfinance institutions in Uganda: a case study of Pride Microfinance

Abstract

The main objective of this study was to determine the effect of loan interest rates and the performance of financial institutions in Uganda. This paper seeks to contribute to the literature by broadening the understanding of the concept of loan interest rate management beyond the technical considerations in the accounting, banking and finance literature. The objectives of this study was to determine the factors that lead to borrowers to take up loans from Pride Micro Finance, to assess the products that Pride microfinance versus other microfinance institutions and to assess the impact of loans offered by Pride microfinance on its’ borrowers. This study used a descriptive research design to enable the researcher to generalize the findings to a larger population. The provision of financial services, especially credit and saving facilities plays an important role in the development of the economy. Despite the efforts of microfinance institutions to take microfinance services within the reach of poor people a multivariate logistic regression was used for significant bivariate variables at 93% significance level. The amount of loans is significantly and positively related with performance of Pride Microfinance Limited. Microfinance institutions should reduce the period required for MSEs to participate in training and group formation to facilitate speedy access to MFI loans. The amount of loan given by MFIs should be increased to enable growth of Microfinance Institutions. The study recommended that micro finance institutions management should understand how they can edge themselves against the eminent dangers of over exposure to credit risk whose importance cannot be understated as can be realized from the findings that can impact negatively on their profitability and performance.