Financial sustainability of microfinance institutions in Uganda: a case of UGAFODE MDI Uganda

Abstract

The microfinance paradigms focus on reduction of poverty through improving access to finance and financial services. However, the positive impacts of microfinance institutions on the welfare of the poor can only be sustained if the institutions can achieve a good financial performance. The purpose of this study, therefore was conducted to investigate the factors affecting the financial sustainability of UGAFODE as a microfinance institution and to identify strategies to improve its financial sustainability. A representative sample of 30 respondents selected from a target population of 55 staff at UGAFODE headquarters in Kampala was used to seek responses to two research questions, i.e; a) What are the challenges hindering UGAFODE from being fully financially sustainable? b) What is the way forward for improving financial sustainability at UGAFODE? Responses to these questions were obtained through one approach that was qualitative in nature. It involved use of a survey method in which respondents were required to fill questionnaires. A self-administered questionnaire was used to collect data, coded and analyzed by using content analysis techniques. The findings revealed that UGAFODE MDI isn’t financially sustainable. It also revealed that most of the challenges that were highlighted in the questionnaire affect UGAFODE MDI as an institution and affect the whole microfinance sector at large. The study further revealed that all the respondents agreed to all the strategies suggested as a way of improving financial sustainability of UGAFODE MDI. The study found that microfinance breadth of outreach, depth of outreach, dependency ratio and cost per borrower affect the financial sustainability of microfinance institutions in Uganda. However, the microfinance capital structure and staff productivity have insignificant impact on financial sustainability of MFIs in Uganda for the study periods. The study concluded that financial sustainability is very important for microfinance institutions and this can be achieved through ensuring a well-balanced capital structure, having enough capital available for investment