Credit risk management and loan recovery in micro finance institutions in Ishaka Bushenyi municipality: a case study of Kyamuhunga Sacco

This study assessed the effect of credit management policies on loan recovery in microfinance institutions in Uganda, with a case study of Kyamuhunga Sacco in Ishaka Bushenyi Municipality. The study targeted top management, cashiers, loan officers, clients, and accountants. A combination of simple random and purposive sampling techniques was used to identify the study’s sample size. Data collection methods included questionnaires, observations, and interviews. The collected data was edited, coded, entered into a computer, and analyzed using Microsoft Excel. The results were presented in tables for clarity. Based on the study’s findings, 100% of respondents confirmed that Kyamuhunga Sacco applies various credit management policies, including credit terms that address both the length of the credit period and the discount rate, the loan amounts recommended by credit officers, and collateral security requirements. The study further revealed that the rate of loan recovery in microfinance institutions in Uganda is influenced by profitability ratios, efficiency ratios, outstanding loans, and the real annual average growth rate of loans. In line with the third objective, the respondents indicated that there is a significant relationship between credit management policies and loan recovery. Effective credit management policies provide the institution with reasonable and adequate returns on loans, and borrowers are typically granted smaller loan amounts to reduce risk. The researcher concluded that Kyamuhunga Sacco applies a variety of credit management policies, with the majority of respondents agreeing that credit terms include both the duration of the credit period and applicable discount rates, alongside a uniform interest rate. The study recommends that Kyamuhunga Sacco should consider redesigning its credit policy to make credit management more effective, thereby reducing loan losses and write-offs.