UGANDA COLLEGE OF COMMERCE, TORORO

THE IMPACT OF PAYBACK PERIOD ON LOAN SERVICING IN

FINANCIAL INSTITUTIONS

CASE STUDY; DTB BANK MALABA BRANCH

AHABWE NIMROD

UBB058/2013/

A RESEARCH REPORT SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR THE
AWARD OF UGANDA DIPLOMA IN BUSINESS
STUDIES OF UGANDA BUSINESS
AND TECHNICAL EXAMINATIONS
BOARD (UBTEB)

JUNE, 2015
 DECLARATION

I Ahabwe Nimrod, declare to the best of my knowledge that this research report is my
original piece of work and has never been submitted for any award to any institution or
university.

Signature ………………………………..
AHABWE NIMROD

Date ………………………………….

ii
 APPROVAL
This research report carried out on the topic “The impact of payback period on loan
servicing in financial institutions” was prepared by Ahabwe Nimrod under my
supervision and is now ready for submission to the Uganda Business and Technical
Examinations Board with my approval.

Signature …………………………………….
(Supervisor)

Date ………………………………………….

iii
 DEDICATION
I dedicate this piece of work to my beloved parents Mr. and Mrs. for their faith, love,
moral and financial support towards my studies.
May the Almighty God bless them abundantly.

iv
 ACKNOWLEDGEMENT
My sincere thanks go to the Almighty God for protecting and guiding me through my
studies.
Another vote of appreciation goes to my parents Mr. and Mrs. for their care and financial
support towards my education. To other family members; Brothers, thanks for the support
towards my studies for advice and your loving hearts, I really appreciate your
contribution so much and may the Lord bless you abundantly.

I also thank my uncles and my Aunts and my friends Mr. and those not mentioned for
their guidance and helping me with some ideas on research work. I pray that God may
bless you all

My special thanks go to my supervisor Mr. for the professional advice and tireless effort
rendered through this research work and guiding me in making corrections where
necessary. Sir, I really appreciate so much and may the Almighty bless you.

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 TABLE OF CONTENTS
DECLARATION.................................................................................................................ii
APPROVAL.......................................................................................................................iii
DEDICATION....................................................................................................................iv
ACKNOWLEDGEMENT...................................................................................................v
TABLE OF CONTENTS...................................................................................................vi
LIST OF TABLES..............................................................................................................ix
LIST OF FIGURESABBREVIATIONS.............................................................................x
ABBREVIATIONS............................................................................................................xi
ABSTRACT......................................................................................................................xii
CHAPTER ONE................................................................................................................1
1.0 INTRODUCTION.........................................................................................................1
1.1 BACKGROUND TO THE STUDY..............................................................................1
1.3 PURPOSE OF THE STUDY.........................................................................................4
1.4 OBJECTIVES OF THE STUDY...................................................................................4
1.5 RESEARCH QUESTIONS...........................................................................................4
1.6 SCOPE OF THE STUDY..............................................................................................5
1.7 SIGNIFICANCE OF THE STUDY..............................................................................5
CHAPTER TWO.................................................................................................................6
LITERATURE REVIEW.................................................................................................6
2.1 INTRODUCTION.........................................................................................................6
2.2 SERVICING OF LOANS..............................................................................................6
2.2.1 Credit Appraisal..........................................................................................................6
2.2.2 Credit documentation..................................................................................................7
2.2.2.1 Collateral..................................................................................................................8
2.2.2.2 Interest Rate.............................................................................................................8
2.2.2.3 Size of Loan............................................................................................................9
2.2.2.4 Purpose of Loan.......................................................................................................9
2.2.2.5 Loan Period..............................................................................................................9
2.2.2.6 Disbursement.........................................................................................................10
2.3 REPAYMENT OF BANK LOANS............................................................................10
2.3.1 Monitoring and Follow up........................................................................................10
2.3.2 Factoring of Debtors through Credit Bureaus..........................................................11
2.3.3 Portfolio Management..............................................................................................11
CHAPTER THREE...........................................................................................................13
METHODOLOGY..........................................................................................................13
3.0 INTRODUCTION.......................................................................................................13
3.1 RESEARCH DESIGN.................................................................................................13
3.2 STUDY AREA............................................................................................................13
3.3 STUDY POPULATION..............................................................................................13
3.4 SAMPLE SIZE............................................................................................................13
3.5 SAMPLING TECHNIQUES.......................................................................................14
3.6 DATA SOURCES.......................................................................................................14
3.6.1 Primary Data.............................................................................................................14
3.6.2 Secondary Data.........................................................................................................14

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3.7 DATA COLLECTION TOOLS..................................................................................14
3.7.1 Group discussion......................................................................................................14
3.7.2 Key informant interview guide.................................................................................14
3.7.3 A self administered questionnaire............................................................................15
3.8 DATA QUALITY CONTROL....................................................................................15
3.8.1 Validity of the data...................................................................................................15
3.8.2 Reliability.................................................................................................................15
3.9 DATA ANALYSIS.....................................................................................................15
3.10 ETHICAL ISSUES....................................................................................................16
CHAPTER FOUR.............................................................................................................17
DATA PRESENTATION, ANALYSIS AND DISCUSSION OF THE FINDINGS..17
4.0 INTRODUCTION.......................................................................................................17
4.1 BIO DATA OF PRESENTATION.............................................................................17
4.2 EFFECTIVENESS OF LOAN SERVICING AND CREDIT ASSESSMENT
PROCESS..........................................................................................................................20
4.3 LEVEL OF LOAN DEFAULT IN DTB BANK.........................................................25
4.4 STRATEGIES TO IMPROVE LOAN SERVICING AND PAYBACK OF LOANS.
...........................................................................................................................................28
CHAPTER FIVE...............................................................................................................33
5.0 INTRODUCTION.......................................................................................................33
5.1 SUMMARY OF FINDINGS.......................................................................................33
5.2 CONCLUSION............................................................................................................34
5.3 RECOMMENDATIONS.............................................................................................35
5.4 LIMITATIONS OF THE STUDY..............................................................................36
5.5 AREAS FOR FURTHER RESEARCH......................................................................36
REFERENCES..................................................................................................................37

APPENDICIES
QUESTIONNAIRE...........................................................................................................38
PROPOSED TIME SCHEDULE OF THE RESEARCH STUDY...................................43
PROPOSED BUDGET......................................................................................................44

vii
LIST OF TABLES

viii
LIST OF FIGURES

ix
ABBREVIATIONS

x
ABSTRACT

xi
 CHAPTER ONE

1.0 INTRODUCTION
The section explains the background to the study, statement of the problem, purpose and
the objectives of the study, research questions, scope of the study and significance of the
study.

1.1 BACKGROUND TO THE STUDY.

Payback policy refers to the policies that are set by bank of Uganda or central bank and
commercial banks which have to followed and abided to by customer when settling their
loans.

DBT bank is a private owned commercial bank. For many banks the loans are the largest
and most obvious source of credit risk and profit. However there are other pockets of
credit risk both on and off the balance sheet such as investment portfolio, overdrafts and
letters of credit. Many product activities and services such as derivatives foreign
exchange and cash management also expose the bank to credit risk and gain for example
the risk of repayment that is to say the possibility that the obligor will fail to perform as
agreed is either less or increased by bank’s credit gaining process sound under writing
standards, an efficient and balance approval process and a competent staff. Because a
bank can not easily overcome borrowers with questionable capacity, these factors exert a
strong influence on credit quality. Borrowers whose financial performance is poor or
marginal or whose repayment ability is dependent upon unproven projections can quickly
become impaired by personal or external economic stress.
A management of credit risk however must continue after has been made for sound initial
credit decision which can be undermined by improper loan structuring and inadequate
monitoring (Hamner, 2009)

According to international monitory fund (IMF, 2008), banks have focused on oversight
of individual loans in managing their overall credit risk. While this focus is important,
banks should also view credit risk management in terms of portfolio segments and the

1
entire portfolio. The focus on managing individual credit risk did not avert the credit
crisis of the 1980’s. However, had the portfolio approach to risk management augmented
these traditional risk management practices, banks might have at least reduced their
losses.

Effective management of loans portfolio credit risk requires that the board and
management understand and control the banks profile and its credit culture. To
accomplish this, they must have a thorough knowledge of the portfolio’s composition and
its inherent risks. They must understand the portfolio’s product mix, industry and
geographical concentration, average risk ratings and other aggregate characteristics. They
must be sure that the policies, processes and practices implemented to control the risks of
individual loans and portfolio segments are sound and that lending personnel adhere to
them, (Hamner, 2009).

Banks engaged in international lending face country risks that domestic lenders do not.
Country risk encompasses all of the uncertainties arising from a nation’s economic, social
and political conditions that may affect the payment of foreigner’s debt and equity
investments. Country risk includes the possibility of political and social upheaval,
nationalization and expropriation of indebtedness, exchange control and currency
devaluation and depreciation. Unless the nation repudiates its external debt, these
developments might not make a loan uncollectible. However even a delay in collection
could weaken the lending bank. (Abraratum, 2012)

The level of interest rates risks attributed to the banks’ lending activities depends on the
composition of its loan portfolio and the degree of which the terms of its loan (for
example maturity, rate structure and embedded options) expose the bank’s revenue
stream to changes in rates (Barinabo, 2001).

pricing and portfolio maturity decision should be made with an eye to finding costs and
maturities. When significant individual credits or portfolio segments are especially
sensitive interest rate risk, they should be periodically stress- tested. If the asset or

2
liability management committee (ALCO) which typically is responsible for managing the
bank’s interest rate risk is to manage to all the bank’s position, it must have sufficient
reports on loan portfolio and pipeline composition and trends. These reports might
include a maturing loan report, pipeline report, rate and pricing report (international
monetary fund, 2008).

Banks frequently shift the interest rates to the borrowers by structuring loans with
variable interest rates. Borrowers with marginal payment capacity may experience
financial difficult if the interest rates on these loans increase. As part of the risk
management process, banks should identify borrowers whose loans have heightened
sensitivity interest rates changes and develop strategies to mitigate the risk. One method
is to require vulnerable borrowers to purchase interest rate protection and otherwise
hedge the risk on interest rate risk management, (Bank of Uganda, 2012).

DTB bank has continued to face similar challenges on loan default like any other
financial institution in Uganda. The money lent to customers are often paid late or not
paid at all leaving the bank exposed to default risk. it is important to note that despite the
rigorous screening undertaken in the credit assessment process, the customers do not
have other credit obligations analysis of their account performance. Sustainability of their
income level security and ability to pay, (International credit manual, 2003). On average
5% of the total loan book had to be provided for fully. The provision was in line with the
financial institutions statute (FIS, 2004) issued by the bank of Uganda. This requirement
largely depends on the product portfolio undertaken in DTB.

3
1.2 STATEMENT OF THE PROBLEM.
Despite the banking policy put in place by the (Bank of Uganda Act, 2000), financial
institutions regulation (2005) and financial institutions Act (2000), DTB bank have
continued incurring losses on some clients who have turned to be bad debtors thus
making the bank incur unplanned expenses and huge profits at the expense of its
esteemed customers by exploiting them despite the protective policies put in place. (DTB
lending manual, 2005).
On the side of clients DTB bank has frequently shifted interest rates. Borrowers with
marginal repayment capacity are experiencing financial difficulty due to increased
interest rates on loans, (Burreaux Report, 2005)
The researcher therefore wishes to establish the effects of payback policy on servicing
loans and establish whether loan decisions are being made outside the policy.

1.3 PURPOSE OF THE STUDY.

The purpose of the study is to find out the impact of payback policy on servicing of loans
in DTB bank- Malaba branch.

1.4 OBJECTIVES OF THE STUDY.

The objectives include;
To find out the effectiveness of loan servicing and credit assessment process that exists in
DTB bank.
i. To establish the level of loan default in DTB banks’ performance.
ii. To find out the strategies to improve loan servicing and payback of bank loans.

1.5 RESEARCH QUESTIONS.

Do payback policies exist and do they have any impact on loan servicing?
How are loans serviced in DBT bank and its clients?

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1.6 SCOPE OF THE STUDY.
The study will be carried out in DTB bank Malaba branch. it will cover issues concerning
loans, loan processing, loan servicing policies and procedures of loan advancement. It
will also establish the existing loan policies set by the central bank (Bank of Uganda).

1.7 SIGNIFICANCE OF THE STUDY.

The study will have the following significances.
The study will be of importance to policy makers and bank managers as they will come to
find out the existing payback policies, their effectiveness and where adjustments needs to
be made to suit the current economic demands.
The study will of importance in the view of banking by providing information to the
public about payback policies and their impact on servicing of loans.

5
 CHAPTER TWO

LITERATURE REVIEW

2.1 INTRODUCTION

The financial viability of any credit institution depends critically on selecting applicants
who have a high probability of repayment and rejecting those who have a high
probability of default Ssewagudde (2000). In doing so loan officers in such financial
institution is put at risk and the organization as a whole. As a way of scaling down loan,
the default problem added a risk premium to the price of the loan to cover loan losses.
This risk premium results from the fact that at the time of the loan request, the lender is
unable to clearly identify which borrower would repay and which borrower would
default, as actual default losses are not known until a scheduled repayments are due.

2.2 SERVICING OF LOANS.

Credit assessment is the first stage in the lending process. It is the process through which
the credit applicant presents the necessary documentations to the bank in order to obtain a
loan.

Credit assessment involves:

2.2.1 Credit Appraisal

This is basic stage in the lending process. Anjichi (1994) describes it as the 'heart' of a
high quality portfolio. This involves gathering, processing and analyzing of quality
information as way of discerning the client's creditworthiness and reducing the incentive
problems between the lenders as principals and the borrowers as agents. The bank's credit
policy, procedures and directives guide the credit assessment process. Banks should base
their credit analysis on the basic principles of lending which are Character, Capacity,
Capital, Collateral and Conditions (Matovu and Okumu, 1996). It is designed to ensure
lenders take actions which facilitate repayment or reduce repayment likely problems.
This information about the riskiness of the borrower makes the financial institution to
take remedial actions like asking for collateral, shorter duration of payment, high interest

6
rates and other form of payment (Stiglitz and Karla, 1990).

When a financial institution does not do it well, its performance is highly affected.
Edminster (1980) stressed the importance of credit analysis when he observed that its
abandonment often resulted into several banks using credit card to process. The variable I
have, according to Hunte (1996) include the length of time taken to process applications,
credit experience, proportion of collateral security to the loan approved. It was found out
that long waiting time reflected a shortage of credible credit information required to make
informed credit decisions.

This in turn leads to greater risk more intense credit rationing and low repayment rates.

Hunte (1996) also observed that loan experience indicated the ability to manage the
business loans better hence good quality borrowers for the business. A less experienced
borrower has less ability to manage a business loan and therefore is not credit worthy
(Bank of Uganda, 2000). This implies that there are big risks associated with new
borrowers since the loan officer has no familiarity of recovery from them.

2.2.2 Credit documentation.

Credit documentation and disbursement is another aspect of credit assessment process. It

encompasses the conduct of key exposure control measures that ensures securities and
documentation is obtained before funds are disbursed, and that modification on all credit
facilities is approved within credit policy. It also includes the maintenance of orderly up
dated credit files and the imposition of relevant fees, updating of records and prompt
notification of credit reviews and renewal dates (Vadaz, 2003). Loan documentation
involves the legal drafting, document review, collateral checks and the waiver of terms.
While the disbursement function involves checking the validity of notes as well as
ensuring that the documentation for the credit facilities are properly executed. Loan
documentation defines the necessary security and covenant before the loan is made. It
provides risk protection by providing grounds for the bank to take legal action when
borrowers fail to honor their obligations (World Bank, 2000). Credit documentations
clearly states the credit terms which are the conditions attached to the loan after the

7
borrower's loan application has been favorably appraised. These include among others:

2.2.2.1 Collateral

This is the borrower's asset pledged in exchange for the receipt of a loan. Banks request
for collateral before extending loans to customers. The collateral is always higher value
than the loan taken to ensure that the loan is paid back. The use of groups as collateral is
accepted by some banks (Bank of Uganda, 2003). When one member fails to pay, the
other group members pay on their behalf. Thus, this system makes it possible for group
members to monitor one another thus leading to improved loan repayment. However,
some studies have found out that group members don't want paying for others and they
also don't like others paying for them (Antonio, 2000).

2.2.2.2 Interest Rate

It is the price of the loanable funds and serves to allocate credit and moderate the level of
investment (Adam, 2009). Interest rates can be looked at from the borrowers' and lenders'
point of view. To the borrower, interest rate is the costs of borrowing money expressed as
a percentage of the amount borrowed (Martin, 1998). A borrower evaluates all costs
including interest rates and expected returns before deciding to take a loan or not. To the
lender, interest rate is determined by factoring in costs such as costs of production, the
inflation rate, personnel, administrative costs, loan loss provisions and capital growth
(Kasibante, 2001). The rate charged should be able to cover costs and make a
contribution for the financial institution. Financial institutions charge different interest
rates depending on their peculiar conditions ranging from 2 to 4% per month (Brochures,
2001)

8
2.2.2.3 Size of Loan

Loan size is the amount of loan advanced to the client. It can be small, medium or big.
Banks prefer bigger loans largely because their transaction costs are lower. Efficient loan
size should fit the borrower's repayment capacity and stimulate enterprise performance.

(Kasekende, 2011), he argues that poor loan sizing is illustrated by extensive credit
rationing, which issues too little credit to too many borrowers. However, according to
Chirwa (1997), relatively large loans may tempt the borrowers to divert a portion for non-
business purposes.

2.2.2.4 Purpose of Loan

The purpose for which credit is sought is an important consideration to the bank because
of the risks in the lending activities. Banks being profit driven, seek to maximize returns
while minimizing risks. This seemingly paradox constrain banks to examine not only
viability of a project but also loan repayment prospects. In many countries, Banks favor
lending for low-risk activities, such as self liquidating, short-term working capital and
trade finance. They are generally less willing to finance high risk projects with long
payback periods, and small forms that lack adequate collateral even though such firms
may be more innovative and promising than others (Roboth, 2008).

2.2.2.5 Loan Period

The World Bank (1996) reported that Banks have little capacity and interest to provide
long-term capital. This is attributed partly to the high composition of short term liabilities
in their portfolio and also their concern for risks associated with lending activities. Banks
in Uganda are therefore reluctant, for reasons of prudence as well as profit to lend for
periods longer than twelve months and because of stringent provisions of the Financial
Institutions (Statute, 2004).

9
2.2.2.6 Disbursement

Disbursement on the other hand ensures that money is not availed until all approvals and
documentation requirements are met. It also ensures that security and other required
documentations are obtained before funds are disbursed. If disbursement control is weak,
the whole integrity of the credit process can be weakened and abused. Thus,
documentations and disbursement are important in the management of credit because
they ensure that the bank has proper documentation, collateral and guarantees. These are
important in the advent of the clients' inability to pay because the bank would be properly
secured and have legal recourse to ensure the settlement of debt. This would ultimately
decrease the amount of bad debts the banks may have (Kasekende, 2011).

2.3 REPAYMENT OF BANK LOANS

After the credit assessment and disbursement is done, the credit customer is expected to
payback the installment as per agreed schedule. Each bank has a different repayment
mechanism based on the specifics of the bank, customers can pay weekly, bi-weekly or
monthly installments in order to ensure good repayment, Banks have to ensure proper
monitoring and follow up actions. (Odongo, 2004)

2.3.1 Monitoring and Follow up

According to Adam (2009), many of the agonies and frustrations of slow and distresses
credits can be avoided by good loan supervision. Supervision helps keeping a good loan
good. It may be visiting the borrowers' premises to investigate the general state of affairs
and maintenance of plant and equipment. Inadequate maintenance is often an early sign
of financial distress. Also to be observed is the state of employee morale and the physical
stock of materials and finished goods. The general business policy and advice is
considered. If a bank is sanitizing to business development it can revise its own credit and
loan polices as well as advising its customers. Again keeping track of deposits and
balances gives clue to the affairs of the borrowers.

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2.3.2 Factoring of Debtors through Credit Bureaus

Banks factor debtors, where the accounts are passed onto finance house. The finance
house advances the value of these debtors to the bank after deducting a commission. The
finance house then undertakes to collect losses if they incur. The debtors are notified of
the transfer and are asked to make payment directly to the finance house. Since the
factoring firm assumes that risk of default on bad accounts, it makes a credit check before
it commits it (Kakuru, 2005).

2.3.3 Portfolio Management

Portfolio management is an important aspect of credit assessment process. It is

relationship management process that focuses on measuring and containing individual
credit risk within strategic guidelines. It involves the administration of the credit facility
to ensure orderly and full payment, monitoring of the credit facilities as well as the
workout strategies in situations when the credit actually deteriorates. The success of
Banks depends on its ability to adapt to changing circumstances (Kagwa, 2003).
Institutions should have a culture of handling funds that must be repaid. They should be
prepared to seize the client collateral if necessary (Garber, 1997). The organization
should have a system of tracking late payments or real losses, deploy staff or collection
agencies to collect these loans in order to maximize return of resources. The purpose of
portfolio management is to assess the likelihood that the credit repaid, as well as whether
or not the classifications of the loan proposed by the bank is adequate. Other
considerations are the quality of the collateral held and the ability of the borrower's
business to generate necessary cash (Greuning et al, 1999).

Portfolio administration involves the aspects of asset classification. Asset classification is

a process whereby an asset is assigned a credit risk grade that is determined by the
likelihood that the debt obligation was serviced and the debt liquidated according to
contract terms. In general, all assets for which a bank is taking risk should be classified.
Assets are classified at the time of origination and then reviewed and reclassified as
necessary (according to the degree of risk) a few times per year. The review should
consider the loan service repayment, borrower's financial conditions, economic friends

11
and changes in respective markets and the performance (Greuning et al, 1999).

Credit administration involves the management of the financial situations, covenants,

collateral, and repayments as well as credit review. It focuses on ensuring that
creditworthiness of the clients earlier on established is maintained. Once a loan is on the
books, it must be managed actively to ensure that it does not deteriorates and that it is
repaid. Good loan management can rarely overcome poor judgment, but many good
credits become problem loans because lending officials did not heed the warning that
arose over life of the loan. The credit administration process involves on- site visit,
regular contact as well as checking for compliance with covenants in the loan
agreements. Borrowers who change their behaviors (moral covenant) and those who do
not supply timely and accurate information (asymmetric information), presents the most
difficult monitoring challenge (Vadaz, 2003). During administration, the credit officer
can detect early warning signals of non-compliance or deterioration. These signals help to
maximize the effects of corrective actions and to minimize the potential loss of the bank.
Some of the signals may include lower deposits, persistent failure to keep appointments,
persistent rolling over credits, and requests for short term facilities on top of current
facilities as well as requests for increments without retiring the previous facility.

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 CHAPTER THREE

METHODOLOGY

3.0 INTRODUCTION
This chapter presents the methodology that will be used in the study. This includes
research design, area of the study and target population, selection of respondents, data
collection methods, data quality control, ethical issues and data analysis.

3.1 RESEARCH DESIGN.

The study will use descriptive research design because of the nature of the variables that
are at hand to produce data required for quantitative analysis and to allow simultaneous
description of payback policy and servicing of loans. (White, 2000).

3.2 STUDY AREA.

The study will be carried out at DTB bank Malaba branch which is located in Malaba
town council Tororo district.

3.3 STUDY POPULATION.

The study will be carried out among workers of DTB bank Malaba branch including the
manager, the loans officers and ten teller operators among others. it will also be carried
out among the customers or clients of the bank sampled randomly, among the members
of staff and people among the area.

3.4 SAMPLE SIZE.

An overall of 10 teller operators will participate in the study of which will act as primary
respondents while the branch manager and loans officers will serve as key and informants
and the clients will serve as focus group discussion participants.

13
3.5 SAMPLING TECHNIQUES.
The sampling techniques describe the selection of respondents that will participate in the
study and in this case random sampling will be used to cover a big population since
respondents are many.

3.6 DATA SOURCES.

3.6.1 Primary Data

Primary data was collected using structured questionnaires, open-ended and closed ended
questions, interviews.

3.6.2 Secondary Data

Secondary data was got from Bank of Uganda reports, Journals, credit procedure
manuals, Offer letters, as well as financial statements of DTB bank Malaba branch.

3.7 DATA COLLECTION TOOLS.

A number of tools will be used to collect data from esteemed respondents. Both primary
and secondary data will be collected and the major tools will include;

3.7.1 Group discussion.

One group discussion will compose of 50 clients of the bank to capture views of clients
regarding the payback policy and servicing of loans. A group discussion checklist will be
used to guide discussion.

3.7.2 Key informant interview guide.

Key informant interview guide will be designed and administered to key informants to
capture qualitative information. The key informants for in depth interviews will include
15 bank workers.

14
3.7.3 A self administered questionnaire.
This will be a major instrument that will be used in data collection. Questionnaire will be
administered to bank workers and 50 clients of the bank. This will help to gather
quantitative and qualitative information regarding the payback policy and servicing of
loans. A questionnaire will comprise of closed and open- ended questions formulated by
the researcher.

3.8 DATA QUALITY CONTROL.

Validity and reliability of data quality will be measured as follows.

3.8.1 Validity of the data.

Validity is the extent to which the data to be collected during the stud cover the issues
they are intended to cover (Amin, 2005). To ensure validity of data, the instruments will
be developed under a close guidance of a supervisor. After the questions are designed,
they will be pre-tested. This will help to identify the ambiguous questions in the
instrument and be able to re-align them to the objectives.

3.8.2 Reliability.
Reliability is the extend to which the data collected will produce consistent scores when
the same groups of individuals are repeatedly measured under the same conditions.
(Amin, 2005). This study will administer one type of questionnaire to bank workers and
clients.

3.9 DATA ANALYSIS.

Data from group discussions and interviews will be entered in a computer and statistical
package for social scientists (SPSS) program will be used to analyze it. a percentage
number of respondents according to variables such as forms of payback policies in place,
sex, age will be computed and presented using tables. The impact of payback policies on
servicing of loans will be established using the Pearson product moment statistical
method. Qualitative data will be organized according to themes identified from research

15
questions and analyzing using content analysis. Data from group discussions will be
recorded, organized, interpreted, presented and discussed.

3.10 ETHICAL ISSUES.

At the onset of data collection, the researcher will seek permission from the general
manager who will introduce the researcher to the branch manager and then introduce the
researcher to the workers who will be the key respondents.

16
 CHAPTER FOUR.
DATA PRESENTATION, ANALYSIS AND DISCUSSION OF THE FINDINGS

4.0 INTRODUCTION.
This chapter presents the research findings and interpretation. This is divided into three
sections each dealing with an objective of the study that were set to achieve.
To find out the effectiveness of credit assessment process in DTB bank.
To establish the level of loan default in DTB bank performance.
To find out strategies to improve loan servicing and payback of bank loans.

The basis of analysis was the objectives of the study and presentation done with help of
tables and narrative text.

4.1 BIO DATA OF PRESENTATION.

These include; age, sex, marital status and education level findings of respondents.

4.1.1 Age of respondents

Here respondents were asked about their ages

Table 1: Responses on the age of respondents.

Age Frequency Percentages (%)
Above 60 15 16
59-50 17 18
49-40 19 20
39-30 25 26
29-20 19 20
Total 95 100
Source: primary data

From Table 1 above,16% of the respondents were above 60 years,59-50 were 18%,49-40
were 20%,39-30 were 26%,29-20 were 20%.Finally the respondents in the age bracket of

17
49-40 constituted the biggest percentage of respondents. This shows that the majority of
respondents were able to read and understood the questions

4.1.2 Gender of respondents

Respondents were asked to indicate whether they are males or females and the following
results were obtained.

Table 2: showing gender of respondents.

Gender Frequency Percentage (%)
Female 20 40
Male 30 60
Total 50 100
Source: primary data

From table 2 above majority of the respondents were males represented by 60% while
females were 40%. This indicates that both males and females were covered in the study.

4.1.3 Responses on the level of education of the respondents.

Here respondents were asked about their highest level of education. This is to those with
PHD, Bachelors degree, Diploma, secondary level and primary level.

Table 3: Showing findings on the level of education.

Level of education Frequency Percentage (%)

PHD 0 0
Bachelors degree 10 20
Diploma 20 40
Secondary 15 31
Primary 4 8
Total 49 100
Source: primary data

18
From the table, no body had PHD as the level of education, 20% had bachelors degree,
40% had diplomas, 31% had secondary certificates and 8% had primary level. this means
that the majority of respondents were literate and also were able to understand and
interpret the content of the questionnaire given to them.

4.1.4 Response on the marital status of respondents.

Respondents were asked if they were single, separated, divorced, widowed, or married.
The following were results obtained.

Table 4: Shows marital status of respondents.

Marital status Frequency Percentage ( %)
Married 20 37
Separated 4 7
Divorced 10 18
Widowed 4 7
Single 16 30
Total 54 100
Source: primary data

Table 4 results indicated that the majority of the respondents were married 37%, followed
by singles respondents with a percentage of 30%, the divorced were 18%, widowed 7%
and separated 7%. This shows that the biggest percentage were married people.

4.1.5 Responses on the years spent on the credit department.

Respondents were asked on the number of years spent in the credit department and the
following results were obtained.

19
Table 5: Shows the number of years spent in the credit department by the respondents.
Number of years Frequency Percentage (%)
Over 10 years 30 60
5- 10 years 5 10
1- 5 years 10 20
Less than a year 5 10
Total 50 100
Source: primary data

From the table 5 above respondents with 10years in the department had 60%, 5- 10 years
had 10%, 1- 5 years had 20% and less than a year had 10%. This showed that the
majority of the respondents were over 10 years and had experience.

4.2 EFFECTIVENESS OF LOAN SERVICING AND CREDIT ASSESSMENT

PROCESS.
This section presents findings on the first objective that was to examine the effectiveness
of loan servicing and credit assessment process employed by DTB bank Uganda. This
objective was studied by examining credit appraisal, collateral, credit scoring, evaluation,
credit documentation and disbursement as discussed below.

4.2.1 Credit Appraisal

Credit appraisal refers to the process through which customers are screened for advancing
a loan. Respondents were asked the kind of documentation DTB bank require to facilitate
credit assessment. From the responses collateral was required to assess customer loans
and this determined whether the loan gets approved or not.

4.2.2 Collateral
Collateral is the borrower’s asset pledged in exchange for the receipt of a loan. Borrowers
are required to pledge existing assets as security for the receipt of loans. Bank executives
were interviewed to find the major type of collateral that the bank required to ensure
recovery. According to the bank executives interviewed most of the loans extended to the

20
private sectors are primary secured by mortgage and landed property. The procedure is to
take possession of the original certificate of title of the property pledged, and to cause the
bank’s change to be registered there.

Table 6: showing responses views on the nature of collateral offered.

Nature of security offered Frequency Percentage (%)
Mortgage 27 37
Hypothecation 25 34
Personal grantee 16 22
Non response 5 7
Total 73 100
Source: primary data

Table 6 above revealed that 37% of the revealed that loans were secured by mortgage of
landed property, Hypothecation of goods and other movable properties like machinery
constituted 34%, personal grantee of the borrowers good will 22%. The study also
revealed that DTB maintained a safety margin on the property mortgaged. The bank only
lends a fraction between 50- 60% of the values of the security offered. DTB prefer
security to a property in the names of the borrowers or an associate while accepting the
security of landed property, the bank requires provision of professional valuation report
signed by a recognized firm of valuers.

4.2.3 Purpose of the loan.

Purpose of the loan was used to determine whether customer diverted the loans to other
usage. This was done in order to confirm proper usage of the loan disbursed as initially
intended.

21
Table 7: shows the responses from the respondents on whether loans were diverted.
Response Frequency Percentage (%)
No 43 59
Yes 27 37
Non Response 3 4
Total 73 100
Source: primary data

Table 7 above shows that 59% of the borrowers sought loans to finance ventures in which
they have interest either by virtue of experience, expertise, viability or return potentials
therefore did not divert the funds. On the other hand, 37% of the respondents agreed that
the loan borrowed from the bank would be diverted. This agrees with the findings by
Odongo (2004). The lenders also confirmed that most loan proposals were appraised
based on the intentions of the sponsor among other variables.

4.2.4 Scoring and Evaluation.

Credit scoring and evaluation involved putting together all the documentations and
information a customer provided to the bank in order to justify being given a loan or not.
Respondents were asked their account performance, collateral, credit worthiness and
previous banking relationship with DTB bank affected their credit scores. Table 8 below
summarized their responses.

Table 8: shows credit scoring and evaluation.

Variable Frequency Percentage (%)
Account performance 16 22
Collateral 28 38
Credit worthiness 21 29
Previous relationship with the bank 8 11
Total 73 100
Source: primary data

22
From table 8 above 38% of the respondents agreed that collateral was one of the most
important valuation criteria in scoring and evaluating customers’ application form.
collateral were often put as security against the loan in the event of default the bank sells
of the property and gets back its money. It was however urged that in Uganda there are
few people who can buy such property offered in the market. it may take long before the
bank sells such property hence funds being tied up in such non performing asset.
Similarly respondents scored 29% and 22% for credit worthiness and previous account
performance respectively as the measure criteria the bank uses to score credit applicants.
Credit worthiness was demonstrated by ability and willingness to pay. On the other hand
account performance showed the customer credit turnover, highlights whether the
financial disciple exhibited by the applicant through operation of their account.

4.1.5 Disbursement.
Disbursement is the process of giving out the loan to the customer. It occurs after a credit
applicant has been successfully appraised and scared. Respondents wee asked whether
loan amount and loan processing time affected its disbursement and hence repayment.

Disbursement Amount.
Respondents were asked whether loan amount was approved and disbursed as requested
to determine its adequacy. From the findings, unsecured loan ranged from minimum
UGX2 million to maximum UGX20 million. Any amount above 20 million were secured
(DTB lending manual, 2005). However, corporate lending had no limit. It depended on
the ability of the borrower to repay and also on the value of the collateral pledged.
Findings showed that some loans were approved as requested and some adjusted. The
details of these findings were summarized as below.

23
Table 9: Showing responses on loan disbursement amount.
Disbursement Amount Frequency Percentage (%)
Approved as requested 37 51
Adjusted /adequate 18 25
Adjusted/ too little 15 21
Nil response 3 4
Total 73 100
Source: primary data

From the findings in table 9 above, 46% of the customers said their loans wee offen
adjusted hence became inadequate. This showed that almost half of the customers had
difficulty in financing the project for which the loan was sought due to this adjustment.
On the other hand, 51% of the customers were approved as requested. Consequently, the
projected cash flows did not tally with the duration of funds financing the project.

Loan processing time.

Respondents were also asked whether the loan processing time affected its disbursement
and repayment. Table 10 shows the respondents response.

Table 10: shows responses on loan processing time.

Duration Respondents Percentage (%)
3 days 56 77
1 week and above 14 19
No idea 3 4
Total 73 100
Source: primary data
From table 10 above 96% of the respondents said that loan processing time took 3 or
more days.
Findings from the study revealed that customers were dissatisfied with the loan
processing time. DTB Bank requires that after a positive appraisal, all the necessary
documentation and registration of changes be completed before a loan is disbursed.

24
However, the borrowers complained that this delay which may last up to a week or so
was not consistent with promptness required in making business decisions. The timing of
the investment is critical because business opportunities and patterns define the entry and
exit point. This therefore means that a shrewd investor who want to enter the market
when its prospects are rising, reap maximum obtainable profits and then exit before the
returns bottom- out may have to take credit else where because of these delays. Most
customers ended up taking loans else where like in Microfinance institutions and other
banks that have a shorter credit assessment process and disbursement.

4.3 LEVEL OF LOAN DEFAULT IN DTB BANK.

The second objective was to establish the level of loan default in DTB. To analyze this
objective, frequency of repayment, monitoring, default rate and enforcement were used.
4.3.1 Frequency of repayment.
Respondents were asked whether repayment frequency of loan affected its performance.
This was used to establish customers’ comfort with repayment schedule DTB bank uses.
Table 11 summarizes the respondents’ response.

Table 11: Shows frequency of repayment of bank loans.

Duration Frequency Percentage (%)

Weekly 10 14
Fortnight 17 23
Monthly 44 60
No- response 2 3
Total 73 100
Source: primary data

From table 11 above, 37% of the above customers were not favored by monthly
repayment schedule. This was part of the reason why customers were not servicing their
loans promptly. Findings also showed that more than half (60%) of the respondents

25
preferred to pay their loans monthly. This was because they preferred to get their salary
and use part of it to pay the bank loan.

4.3.2 Loan monitoring and follow-up

The study examined the extent of monitoring and follow up by DTB to ensure proper
credit controls. Monitoring and follow up involved among others regular inspection and
enforcement of recovery by the lending institution to ensure funds obtained have been
used for the intended purpose and subsequently repaid. Respondents were asked whether
DTB do prepare monitoring and follow up the loans advanced to the customers. Figure 1
below shows their responses.

Figure 1: loan monitoring and follow up.

From figure 1 above, the study revealed that 74% of the loans were not monitored and
followed up. These were Marjory in secured personal loans. 26% of the borrowers
acknowledged having hosted bank inspectors in the course of the preceding twelve
calendar months. Even then, the majority of the visits were inspection of collateral
security offered, state of machinery and physical developments on new projects by the
corporate department. The lenders on other hand emphasized that they carried out
inspection on application of promising projects, units requiring additional funding and
troubled accounts. They contend that the above strategy was prudent since it was

26
uneconomical to carry out routine inspection of all borrowers owing to financial, logical
and human resources constraints.

4.3.3 Loan Default Rate.

Using secondary data, the study examined the level of loan default or performance. It
showed the quarterly loan amount disbursed and percentage of the amount paid during
the financial year 2004- 2006. Table 12 below showed the trend of loan performance and
default rate.
Table 12: Shows loan default Rate.
Quarte 2004 (UGX MILLION) 2005 (UGX MILLION) 2006 (UGX MILLION)
r /year
Loan Loan paid Arrear % of Loan Loan Arrear % of Loan Loan Arrear % of loan
disbursed loan disbursed paid loan disbursed paid paid
paid paid

Qter 1 32 13 19 51 211 39 172 19 396 102 294 26

Qter 2 180 55 125 31 461 116 346 25 359 222 136 62
Qter 3 155 20 134 20 437 131 305 30 397 212 184 53
Qter 4 277 52 224 19 233 165 68 70 386 160 226 41
Total 644 140 502 32 1342 451 891 36 1538 696 840 46
Average 161 35 126 32 336 113 223 36 385 174 210 46
yearly
balance
Source: secondary data

From table 12 above, the bank recovered on average 32% value of 644 million worth of
loans disbursed in 2004, 36% of 1342 million in 2005 and 46% of total loan value of
1535 million disbursed in 2006. This clearly showed that the default rate is high with
more than 50% of the loan disbursed yearly not repaid. Despite that DTB bank continued
to use the services, private low firms and court bailiffs to enforce recovery from 71% of
the customers who were either unwilling to pay or unaccountable. The borrowers
however complained that the private lawyers and auctioneers are cruel, skeptical and high
handed in their operations leading to severe breakdown in relationship and disrupting
business operations. The characteristic method adopted by the recovery agencies

27
included, rescheduling, litigation, seizures, attachments and auction of securities and
other assets of the indebted units.

4.4 STRATEGIES TO IMPROVE LOAN SERVICING AND PAYBACK OF

LOANS.
This section presents the findings on the strategies to improve the loan servicing and
payback of loans in DTB bank Uganda. During the study, efforts were made to assess the
possible interplay between the loan servicing process and payback of bank loans. The
borrowers were requested to give their free opinion and analysis of loan performance,
incidental costs of borrowing, interest rates and the loan period.

4.4.1 Analysis of loan performance

From the study, bank officials were asked whether customers honored their obligations as
agreed hence serving the loan regularly. The analysis of the data collected during the
study confirmed the miserable trend in the performance of advances as summarized in the
table 13 below.

Table 13: Response on loan performance

Performance Frequency Percentage (%)
Regular 33 45
Substandard 26 36
Doubtful 3 4
Bad 9 12
No response 2 3
Total 73 100
Source: Primary data

From table 13 above empirical findings revealed poor overall performance of credit
facilities advanced by DTB bank. More than half (52%) of the respondents were not
repaying their loans promptly, 45% paid their loans regularly but with difficulty. Over
16% classified out rightly as bad and doubtful debts. The above observations tallies with

28
(World Bank 1996). Conclusion, which estimated commercial aggregate non performing
assets in excess of 50% of total loans lent to customers. The strategic action includes; a
survey by DTB regularly on customer behavior and reason for their difficult to repay.

4.4.2 Incidental costs borrowing

Respondents were asked whether incidental costs to borrowing had an impact on
lending in order to determine its repayment. Findings indicated that costs incurred in
securing a loan influenced the attitude of borrowers towards the facility. These costs
which were incurred up truant, included, arrangement, commitment fees, legal fees and
other professional charges (for example valuation fees and other related expenses)
affected the attitude of borrowers
Findings also showed that these costs are high and sometimes discourage the customers
from repaying the loan principle plus interests. DTB needs to review this arrangement
and top up loans which are currently charged full commitment needs to be revised
downwards.

4.4.3 Interest rates.

View interest rates.
Interest rate is the price of the loanable funds and serves to allocate credit and moderate
the level of investment. Ideally, interest rates take on a dual role of retaining credit and
also of regulating the dual composition of lender’s portfolio. Respondents were asked
whether DTB bank offered competitive interest rates on lending. Figure 2 below shows
their responses.

29
From figure 2 above, DTB bank was fond to charge high interest rates on all the loans
extended to borrowers. 60% of the respondents reported that DTB interest rates were not
competitive. This was the reason why most customers did not repay in time. On the other
hand, 40% of the respondents agreed that DTB charged a competitive interest rates like
other commercial banks. Interest rates offered by DTB bank ranged from 24% to 38%.
This rate depended on the client and the project. From the respondents, the higher the
interest rates the more likelihood of default and vice versa. DTB customers confirmed
that payment of interest rates on the facility ewoyed from the bank. The interest rates
both for deposit and advances have since been liberalized following the government’s
move to restructure the financial sector in Uganda. This means banks are at liberty to set
their own lending and deposit mobilization rates. DTB needs to review its interest rates
regularly to match with the market rates.

Interest Rate Servicing.

Respondents were also asked whether interest rates affected their servicing of bank loans.
From the interviews, findings regarding the influence of interest rates on loan
performance bring forth one of the most unanimous responses as summarized in table 14
below.

30
Table 14: Showing whether interest rates affects loan servicing
Interest rates Frequency Percentage (%)
Serviced regularly 14 19
Serviced irregularly 17 23
Entire amount in arrears 32 44
Unserviceable 8 11
No response 2 3
Total 73 100
Source: primary data
The study revealed that 78% of the customers felt that DTB interest rates are high and
favorable. Only 19% of the respondents serviced interest rate due to their loans regularly.
Borrowers complained of high interest rates, which they claimed contributed to rapid
accumulation of arrears (International Monetary Fund, 2008). DTB calculates interest on
loans on a “compound interest” basis while that on deposit is calculated on a simple
interest basis and paid quarterly. The former therefore leads to multiplication of interest
on interest incase a borrower defaults to offset interest as when applied. Further more
borrowers complained that interest was charged monthly, yet those on deposits are
applied on quarterly basis. This created a disparity between the interest income and loan
deduction expense on customer accounts. From the findings, DTB should charge monthly
credit interest and also apply debit interest on customer accounts monthly. The
calculation of interest on loans should be on simple interest basis to make it consistent
with interest paid on customer deposit.

4.4.4 Loan period

Respondents were asked whether the loan period was adequate for the projects for which
loan was borrowed in order to ascertain the relationship between loan servicing and
payback of bank loans. Findings indicated that DTB lent for short term between one to
four years maximum. Borrowers pointed out that whereas DTB bank insists on
stipulating the repayment period and schedule of installments for demand loans, the
business conditions are rarely strict conformity to these specifics. Table 14 below
summarized responses on loan period.

31
Table 10: Shows response on loan period.
Opinion on loan period Frequency Percentage (%)
Adequate 28 38
Inadequate 31 42
Others 6 9
No response 8 11
Total 73 100
Source: primary data

From the findings 62% confirmed that the loan period was inadequate. The short term
nature of the bank loans therefore renders the facility unfavorably classified because the
gestation period of some projects falls outside their loan span. DTB bank needs to align
the loan tenure to the projects being undertaken by customers. In this way the customers’
cash flow will tally with the repayment schedule reducing cases of loan default.

32
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS.

5.0 INTRODUCTION
This chapter presents a summary of the major findings of the study, the conclusion,
recommendations and areas for further research. A revelation of both theoretical and
empirical issues that underline the loan servicing and repay back of bank loans was made
in the chapter. The summary is presented in hereunder.

5.1 SUMMARY OF FINDINGS.

5.1.1 Effectiveness of loan servicing
From the findings, the following summaries were made. In terms of documentations,
DTB required a letter from the employer as the major loan assessment document.

Unsecured loans ranged between UGX 2 million and UGX 20 million required a valuable
collateral from the customers. Most of the customers (59%) were found not to divert the
loans to other purposes. However, 37% agreed to have diverted the funds.

The respondents (46%) also confirmed that their loans were often adjusted and became
insufficient to finance their intended projects.
The study also revealed that (96%) loan processing took about a week to process. This
was a long time and most customers could not wait. They got loans elsewhere.

5.1.2 Level of loan default.

The study found that 37% of the respondents were not favored by monthly repayment.
The customers preferred more flexibility by the bank.
From the study 74% of the respondents confirmed that DTB did not monitor and follow
up loans regularly. It was noted that an average 50% of the loans disbursed a year were
provided for and sometimes written off by the bank fully.

33
The bank charged interest rate ranging between 24- 38% depending on the value of the
collateral offered by the customer. For secured loans only 50- 60% of the value was
advanced to the customers.

5.1.3 Strategies to improve loan servicing.

The study revealed that DTB need to implement turnaround strategy to review the loan
servicing process, interest rate flexibility, reviewing the incidental costs to borrowing,
appropriate lending period that matches with project cycles, proper monitoring and
regular follow up. Through these strategies, DTB will substantially improve on its
lending book.

5.2 CONCLUSION.
On loan servicing, the researcher concludes that the bank required a letter from the
employer as part of the loan servicing documentations. It was however noted that
information on customers’ existing borrowing in the other financial institutions could not
be validated by the loans officer. The loans advanced to the customers took a week or
more to process. Upon approval, commitment fees are paid by all customers irrespective
of whether the customer had a loan with DTB or not.

All loans above UGX 20 million are secured by mortgage property. In this regard, credit
was given up to 50- 60% of the value of security offered by customers. Secured loans
also attract lower interest rates unlike the unsecured that costs between 24- 38%.
Unsecured loan was limited to a value of UGX 20 million and below.

On the level of default, the study concludes that the bank uses fixed monthly repayment
schedule for customers to repay their loans. This method did not favor 37% of the
customers. It further concludes that the bank did not monitor and follow up loans given to
customers.

34
5.3 RECOMMENDATIONS.
DTB commits tremendous resources in credit creation, which constraints their major
source of revenue. From the findings, the study makes the following recommendations.
Loan processing: The loan scaring process was noted to be long and tedious. A loan
could take up to one week. Most customers were unhappy with the turnaround time for
the facility, hence look for alternative sources of credit. The study recommends that DTB
review its loan scaring process with view of shortening it.

Monitoring and follow up:

It was noted from the study that DTB does not do frequent checks and follow ups on
customers who had borrowed. The study recommends that the credit department be
properly resourced and facilitated to visit the customers regularly. Reminders in form of
text messages to customers’ mobile phones and reminder letters are encouraged.

Commitment fees:
The costs associated with obtaining a loan that are often incurred prior to disbursement
affect both projected cash flow and the borrowers’ morale regarding settlement of the
facility. The study recommends that DTB bank desist from charging full amount of
commitment fee on loan amount every time a new facility is sanctioned to a previous
borrower. Where previous limits are increased upon renewal, only the difference should
be charged.

Interest rates:
From the study, customers complained of high interest rates charged by DTB bank to the
borrowing customers. To improve this, the study recommends that DTB review its
interest rates regularly to tally with the prevailing market conditions. Frequent bench
mark of interest rates will improve on loan performance. The bank should also encourage
customers with security to use them in order to borrow at a lower interest rate.

35
Information on borrowers:
DTB bank lack credible sources of information on borrowers. It relied on information
provided by customers about their previous borrowing. Such information was hard to
validate because most customers did not disclose all their existing borrowings in other
financial institutions. The study recommends that DTB bank should pool together
possibly under the auspices of Uganda Bankers’ Association (UBA) and establish a credit
information bureau to which reference can be made before a loan is disbursed.

5.4 LIMITATIONS OF THE STUDY

During the course of this study, the researcher encountered the following problems which
consequently hindered the smooth conducting of this study.

 The busy office schedule of some officer caused slightly less attention to the
researcher and was overcome by using various research methods.

 Financial resources to facilitate the research also limited the findings and this
was solved by fundraising from relatives.

 Failure by some respondents to return the questionnaires and some not willing to
take part in the study which was tackled by using different data collection tools.

 Some text books were not easily accessed and available in the library which
limited in gathering enough literature for the study and this will be solved through
the use of internet data.

5.5 AREAS FOR FURTHER RESEARCH

The following areas are recommended for further research.
 Causes of loan failures to broadly asses the institutional behavior and
environmental aspects from both lenders’ and borrowers’ perspective.
 Borrowers’ characteristics and their capacity for credit management.

36
REFERENCES

37
 APPENDIX A

QUESTIONNAIRE
Dear sir/ madam
I am a student of Uganda College of Commerce Tororo carrying our research on “The
impact of payback period on loan servicing in financial institutions” as part of
requirement for the fulfillment of the award of Uganda Diploma in Business Studies
(UDBS). I therefore humbly request you to spare some of your time and fill this
questionnaire. Please be assured that all information you give here will be strictly for
academic purposes and will be treated with great confidentiality.

SECTION A
Respondent’s background information.
In each section, tick in the box or fill in your response in the space provided.

1. Age of respondents.
Above 60 59- 50 49- 40 39- 30 29- 20

2. Gender
Male Female

3. Level of education.
PHD Masters Bachelors Diploma Secondary Primary
Degree Degree level level

4. Marital status.
Married Separated Divorced Widowed Single

38
5. Number of years in the credit department.
Over 10 years 5- 10 years 1-5 years Less than a year

SECTION B
FACTORS AFFECTING SERVICING OF LOANS IN DTB BANK MALABA
BRANCH
1. Borrowers in DTB bank Malaba are required to pledge existing collateral before
receipt of the loan.
Strongly Agree Strongly Disagree Disagree Not sure
Agree

2. Borrowed funds (loans) are normally injected in the business for which it was
borrowed.
Yes No Non- Response

3. Customers are evaluated and score according to their account performance, collateral,
credit worthiness and previous banking relationship.
Strongly Agree Strongly Disagree Disagree Not sure
Agree

4. Loans are approved and disbursed as requested.

Strongly Agree Strongly Disagree Disagree Not sure
Agree

39
5. Loans processing time affects the disbursement and repayment.
3 days One week and above No response

SECTION C
FACTORS THAT AFFECT THE REPAYMENT OF BANK LOANS.
6. Borrowers payback borrowed funds within
Weekly Fortnightly Monthly No response

7. DTB does proper monitoring and follow up of the loans advanced to the customers.
Yes No

8. Do customers pay back loans as per the agreed terms and conditions?
………………………………………………………………………………………………
………………………………………………………………………………………………

SECTION D
RELATIONSHIP BETWEEN PAYBACK PERIOD AND SERVICING OF
LOANS.
9. Customers honor the obligations as agreed hence servicing the loans regularly,
Strongly Agree Strongly Disagree Disagree Not sure
Agree

40
10. Incidental costs to borrowing have an impact on landing in order to determine its
repayment.
Strongly Agree Strongly Disagree Disagree Not sure
Agree

11. DTB offers a competitive interest rate on lending.

Yes No

12. Interest rates affect servicing of bank loans.

Strongly Agree Strongly Disagree Disagree Not sure
Agree

13. Loan period is adequate for the projects for which the loan is borrowed.
Strongly Agree Strongly Disagree Disagree Not sure
Agree

41
 APPENDIX B

PROPOSED TIME SCHEDULE OF THE RESEARCH

STUDY.
PERIOD ACTIVITY
September- October, 2014 Identification of the research topic and approval.
October, 2014 Data collection.
October- November, 2014 Proposal writing.
November- December, 2014 Formulating and writing of questionnaires
January- February, 2015 Supplying questionnaires to the respondents of DTB
bank Malaba branch.
March, 2015 Collecting all the questionnaires from the respondents
March- April, 2015 Writing the research report using information obtained
from the respondents, interpreting it, tabulating and
finally analyzing.
May, 2015 Typing printing and binding of the research report.
June, 2015 Approval and submission to the research report

42
 APPENDIX C

PROPOSED BUDGET

Item Amount

Stationary 60,000

Type setting 45,000

Binding 6,000

Transport 30,000

Supervision 100,000

Meals 30,000

Miscellaneous 20,000

Total 291,000

43