THE ROLE OF MICRO-CREDIT ON PROFITABILITY OF MICROFINANCE INSTITUTIONS (MFis): A CASE STUDY OF BRAG FOUNDATION UGANDA-NYANAMABRANCH

TABLE OF CONTENTS

DECLARATION ....................•.................•......................................................................... i

APPROVAL ...................................................•..........••.............•........................................ ii

ACKNOWLEDGEMENT ..................................................••.............................•......•......•.. iii

TABLE OF CONTENTS ....................................•............................................•............••.. v

CHAPTER ONE .............................................................................................................. 1

1.0 INTRODUCTION ............................................................................................................. 1

1.1 BACKGROUND TO THE STUDY ......................................................................................... 1

1.2 STATEMENT OF THE PROBLEM ....................................................................................... 3

1.3 PURPOSE OF THE STUDY .............................................................................................. 3

1.3.1 SPECIFIC OBJECTIVES······························································································· 3

1.4 RESEARCH QUESTIONS ..............•......................................•........................................... 3

1.5 SIGNIFICANCE OF THE STUDY ......................................................•..........•...................... 4

1.6 SCOPE OF THE STUDY .................................................................................................. 4

1.7.1 GEOGRAPHICAL SCOPE ..................................................•........................................... 4

1.7.2 TIME SCOPE ...........................................................................................•.................. 4

1. 7.3 CONTENT SCOPE ............ : .......................................................................................... 4

1.8 CONCEPTUAL FRAMEWORK .................•......................................................................... 5

CHAPTER TWO .............................................................................................................. 6

LITERATURE REVIEW .................................................................................................. 6

2.0 INTRODUCTION ...........................•.....................................•........................................... 6

2.1 MICRO CREDIT ...............................................................•..............................•.............. 6

2.2 MICROFINANCE PERFORMANCE ....................................................................................• 8

2.2.1 THE BROADER CONTEXT ................................................•........................................... 8

2.2.2 FINANCIAL SUSTAINABILITY ...........................................•.........••.................................. 9

2.2.3 PROFITABILITY AND OUTREACH OF MICROFINANCE INSTITUTIONS ...................•............. 12

2.2.3.1 PROFITABILITY AND MICROFINANCE MECHANISMS .................................................... 13

2.3 MICROFINANCE PERFORMANCE ................................................................................... 13

2.3.1 THE BROADER CONTEXT ....................................................•..................................... 13

2.3.2 FINANCIAL SUSTAINABILITY ....................................................................................... 14

2.4 THE LENDING REQUIREMENTS OF CREDIT INSTITUTIONS ...•.......................................•..... 17

2.4.1 THE DRIVERS OF MICRO FINANCE INSTITUTIONS TO GIVE CREDIT ................................. 19

2.5 PROFITABILITY OF MICRO FINANCE INSTITUTIONS (MFIS) .............................................. 21

2.5.1 WAYS ON HOW TO ENCOURAGE MICRO FINANCE INSTITUTIONS TO GIVE CREDIT ........... 23

v

CHAPTER THREE ........................................................................................................ 26

RESEARCH METHODOLOGY ..................................................................................... 26

3.0 INTRODUCTION ...................................................•...................................................•... 26

3.1 RESEARCH DESIGN .................................................................................................... 26

3.2 STUDY POPULATION ..................•........................................•.....................•................. 26

3.3 SAMPLE SIZE AND SELECTION ...•..................•.....................•....................................•... 26

3.2 SAMPLING TECHNIQUES .........................•......................•............................................. 26

3.5 DATA CoLLECTION METHODS ..•..........•.............................•......................................... 27

3.5.1 QUESTIONNAIRE ...............................................•..................................................... 27

3.5.2 INTERVIEW METHOD ................................................................................................ 28

3.5.3 RESEARCH INSTRUMENTS ........................................................................................ 28

3.5.4 DOCUMENTARY REVIEW .......................................................................................... 28

3.6 MEASUREMENTS OF VARIABLES .................................................................................. 28

3.6.1 VALIDITY OF THE INSTRUMENTS ................................................................................ 28

3.7 PRE-TESTING ..............................................•.............................................................. 29

3.8 RELIABILITY OF INSTRUMENTS ....................•................................................................ 29

3.9 DATA VALIDITY·········································································································· 29

3.10 DATA ANALYSIS······································································································· 29

3.11 ETHICAL CONSIDERATIONS ........................................................................................ 30

CHAPTER FOUR .......................................................................................................... 31

PRESENTATION, ANALYSIS AND INTERPRETATION OF THE FINDINGS ............. 31

4.1 INTRODUCTION ...................................................•....................................................... 31

4.2 FINDINGS ON SOCIAL DEMOGRAPHIC CHARACTERISTICS OF THE RESPONDENTS ............... 31

4.2.1 GENDER OF RESPONDENTS .............................•........................................................ 31

4.2.2 FINDINGS ON AGE OF RESPONDENTS ......................................................................... 32

4.2.3 FINDINGS ON MARITAL STATUS .........•....................................................................•.. 32

4.2.4 FINDINGS ON EDUCATION LEVEL OF THE RESPONDENTS .............................................. 33

4.2.5 FINDINGS ON NUMBER OF DEPENDENTS ..................................................................... 33

4.2.6 FINDINGS ON OCCUPATION OF RESPONDENTS ..................•......•.................................. 34

4.3.1 FINDINGS ON MEMBERSHIP DURATION ..............................•........................................ 34

4.3.2 FINDINGS ON NUMBER OF TIMES THE MEMBERS HAD RECEIVED CREDIT ........................ 35

4.3.3 FINDINGS ON CREDIT ACQUISITION AND ACCESSIBILITY ............................................... 36

4.3.4 FINDINGS ON INTEREST RATE ON THE LOAN PER YEAR ...............................................• 36

4.3.5 FINDINGS ON LOAN UTILIZATION ............................................................................... 37

4.4 PROFITABILITY OF MICRO FINANCE INSTITUTIONS .........•................................ 38

4.4.2 FINDINGS ON THE FACTORS FOR LOW LEVELS OF PROFITABILITY .................................. 38

4.4.3 FINDINGS ON CAPITAL IMPROVEMENT OF RESPONDENTS ............................................ 39