The Impact of Credit Appraisal On Loan Recovery in Microfinance Institutions in Uganda; A Case of Finance Micro Finance Katwe Branch

ABSTRACT

The purpose of the study was to analyze the contribution of credit appraisal on loan recovery in microfinance institutions, Katwe branch using the objectives to examine the practice of credit assessment in Finca, Katwe Branch, to find out the challenges faced in recovering loans in Finca, Katwe Branch and to establish the relationship between credit assessment and loan recovery. The researcher used a sample survey research design in the study. The study used a sample size of 70 respondents. The researcher used interviews and questionnaires for collecting data for the study. The findings revealed that on the practice of credit assessment, the biggest percentage of respondents that was 63(90%) of the respondents strongly agreed that finding out whether a client or a company has unpaid loan in another institution is one of the practices of credit assessment, on the relationship between credit assessment and loan recovery, the biggest percentage of respondents that was 65(93%) of the respondents strongly agreed that Examining the client's creditworthiness before giving out a loan makes recovering it easy and finally on the challenges faced in recovering loans, the biggest percentage of respondents that was 56(80%) of the respondents strongly agreed that failure to track and reconcile accounts makes collection of money from some borrowers difficult and tough economic conditions which are unfavorable to the borrower and sometimes to the lender makes loan recovery a big challenge where 50(71.4%) of the respondents strongly agreed. A big number of the respondents also disagreed that weak credit policies is a big challenge to paying back loans. The researcher recommended that pride micro finance should do frequent checks and follow-ups on customers that had borrowed, credit department be properly resourced and facilitated to visit the customers regularly and finally in order to select potential and risk taking applicants the micro finance institutions should have adequate applicant screening criteria such as credit discipline or repayment history current capacity to repay loan personnel behavior and business experience should be considered at the time of applicant screening.