Operational costs, lending policies and outreach of Urwego Opportunity Microfinance Bank LTD, Rwanda

Abstract

This study was carried out to investigate the declining outreach levels as a result of lending policies and high operational costs of URWEGO Microfinance Bank. The objectives of the study were to examine the relationships between operational costs, lending policies, repayment rates and outreach of URWEGO microfinance bank. A sample of 50 staff and 171 clients of URWEGO microfinance bank were used in the study. It was observed that there was a significant negative relationship between operational costs and outreach. The study also revealed that there was a significant negative relationship between operational costs and repayment rate. The study findings also showed that there was a significant positive relationship between lending policies and repayment rate. Further analysis of the results indicates that operational costs and lending policies predict 59% of the variance in the outreach. Therefore URWEGO microfinance bank of Rwanda should adopt technological innovations, product refinements, and strengthen capacity that is needed to reduce costs, increase outreach, and boost overall profitability. There is need by the microfinance to minimize the effective interest rates charged on borrowers which may affect the depth of outreach.