Effects of Credit Risk on Profitability and Sustainability: Evidence from Selected Micro Finance Institutions within Sub Saharan Region

Aims: The study aimed to investigate the effects of credit risk on the profitability and sustainability of micro-financial institutions (MFIs) in Sub-Saharan Africa. Given the critical role that MFIs play in financial inclusion and economic development, understanding how credit risk affects their operational efficiency is essential for ensuring long-term financial stability. Study Design: This research adopted a mixed-methods approach, integrating both explanatory and descriptive research designs to explore the causal relationship between credit risk and MFI performance, while also offering contextual insights into how these risks manifest in practice. Place and Duration of Study: The study was conducted across 12 selected countries in Sub-Saharan Africa representing approximately 25% of the region’s nations and spanning West, East, and Southern Africa. Data collection took place between August 2024 and March 2025. Methodology: The study utilized both primary and secondary data sources. Primary data were gathered through online surveys and semi-structured interviews with MFI employees and managers. A sample of 385 participants was selected using stratified random and purposive sampling techniques. Descriptive statistics were conducted using SPSS to analyze survey data, while thematic analysis was used for qualitative interview data. Regression analysis was employed to test the hypothesis regarding the influence of credit risk on profitability and sustainability. Results: The study found that credit risk has a significant negative effect on the profitability and sustainability of MFIs. Regression analysis revealed a coefficient of -0.318 (t = -3.457, p = 0.001), indicating that higher credit risk is associated with lower profitability and reduced operational stability. Descriptive statistics showed moderate to high concern for credit risk (mean = 3.68) alongside modest profitability (mean = 3.45) and sustainability (mean = 3.52), while interviews confirmed that loan defaults and non-performing loans continue to compromise financial performance despite robust risk assessment efforts. Conclusion: Credit risk is a central challenge undermining both the financial performance and long-term sustainability of MFIs in Sub-Saharan Africa. Even with existing mitigation strategies, persistent defaults continue to erode profitability and operational stability. MFIs should strengthen credit appraisal using both financial and non-financial indicators, invest in staff training on risk assessment and monitoring, leverage digital tools for real-time borrower tracking, and align credit decisions with their risk appetite. Additionally, engagement with policymakers to enhance regulatory frameworks, combined with scenario analysis and stress testing, will support more resilient and sustainable operations.