Wnnie PROPOSAL REVISED FINAL

CREDIT PORTFOLIO MANAGEMENT AND FINANCIAL PERFORMANCE OF
MICROFINANCE INSTITUTIONS: A CASE STUDY OF Windsor
MICRO FINANCE INSTITUTION ENTEBBE (WMFI)
BY:
A RESEARCH PROPOSAL SUBMITTED TO THE SCHOOL OF BUSINESS ADMINISTRATION IN

PARTIAL FULLFILMENT OF THE REQUIREMENT FOR THE AWARD OF
A BACHELORS DEGREE OF BUSINESS ADMINISTRATION
OF NKUMBA UNIVERSITY
1
OCTOBER, 2022
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DECLARATION
I …………………………. affirm that the work contained in this proposal is by my hard work
and has never been submitted to any institution for any award
i
APPROVAL
This piece of work has been under my supervision and now it is ready to be submitted for
examination.
Supervisor
……………………………………………………..
Signed: ………………………………………
ii
DEDICATION
I dedicate this piece of work to my family, friends and relatives who have tirelessly supported
me throughout my study.
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ACKNOWLEDGEMENT
For any purposeful endeavour; a combined effort is solicited and sometimes applied. For the case
of this study; a number of people have helped me to get it accomplished. I am, therefore, bound
to thank them all. I first of all, thank the Almighty God who granted me the opportunity to reach
this far as well as enabling me to work on this research which is the most hectic activity in the
academic endeavours. Glory is to Him.
I am also indebted to extend my warmly thanks to the individuals who unreservedly contributed
to the success of this study. Firstly, numerous thanks, obviously, without doubt, are extended to
my supervisor whose pieces of advice, assistance and counselling are more of parental and as
such made me reach this far. Lastly, but most important, I would like to thank everybody who
helped me in one way or another and I do apologize if I have not mentioned them specifically.
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TABLE OF CONTENT
DECLARATION i
APPROVAL ii
DEDICATION iii
ACKNOWLEDGEMENT iv
TABLE OF CONTENT v
LIST OF FIGURES vii
LIST OF TABLES viii
CHAPTER ONE: INTRODUCTION1
1.0 Introduction 1
1.1 Background of the Study 1
1.2 Statement of the Problem 4
1.3 Specific Objectives 5
1.4 Research Questions 5
1.6 Scope of the study6
1.6.1 Time scope 6
1.6.2 Content Scope 6
1.6.3 Geographical Scope 6
1.7 Significance of the study 6
1.8 Justification of the study 7
CHAPTER TWO 8
STUDY LITERATURE 8
2.0 Introduction 8
2.1 Literature Survey 8
2.2. Theoretical Review 9
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2.3 Credit Portfolio Management history and Financial Performance 11
2.4 Credit Portfolio data quality and financial performance of financial institutions. 15
2.5 Financial Performance 18
2.6 Conceptual Framework 19
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CHAPTER THREE: METHODOLOGY 20
3.1 Introduction 20
3.2 Research Design 20
3.3 Research approach 20
3.4 Research Classification 21
3.5 The research duration. 21
3.6 Target Population 21
3.7 Sampling design and sample size 21
3.8 Data Collection 22
3.9 Validity 22
310 Reliability23
3.11 Data Analysis 23
3.11 Ethical Consideration 23
References 25
APPENDIX I: QUESTIONNAIRE 27
APPENDIX II: INTERVIEW GUIDE 30
Appendix III: Sample Size Determination Table 31
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LIST OF FIGURES
Figure 2. 1: Conceptual Framework 25
viii
LIST OF TABLES
Table 3.1: Sample Size Determination 28
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CHAPTER ONE: INTRODUCTION
1.0 Introduction
This study will examine the effect of credit portfolio management on financial performance of
non-deposit taking micro finance institutions in Uganda using a case of Windsor Microfinance
Ltd. The independent variable for this study is Credit Portfolio Management, and the dependent
variable is financial performance. This is an introductory chapter that discusses the study's
history, problem statement, purpose, study objectives, research questions, study scope, and
importance.
1.1 Background of the Study
The background of the study is presented in four different perspectives namely; historical,
theoretical, conceptual and contextual.
1.1.1 Historical Perspective
Lending is the primary business activity for most financial organizations. The Credit portfolio is
often the greatest asset for microfinance firms and is the most common source of revenue.
According to Boateng (2011), in the United States, effective credit risk management of the
Credit portfolio necessitates that the board of directors and management understand and oversee
the bank's risk profile and credit culture. To do so, they must have a solid understanding of the
portfolio's makeup as well as its inherent risks (Matovu & Okumu, 2013).
In Africa, in most of the developments that improve the Credit portfolio’s liquidity have
implications for price risk. Traditionally, the lending activities of most banks in Ghana were not
affected by price risk. Because Credit were customarily held to maturity, accounting doctrine
required book value accounting treatment. However, as banks develop more active portfolio
management practices and the market for Credit expands and deepens, Credit portfolio has
become increasingly sensitive to price risk (Nnanna, 2005).
In Uganda, the formal financial institutions providing microfinance, although there were a few
non-governmental organizations (NGOs) and government initiatives doing so. During the past 15
years, the industry grew at a dizzying pace. There were about 750 MFIs in operation by
December 2005, with the bulk of them being savings and credit cooperatives (SACCOs)
(MOFPED, 2006). In 2004 and 2005, four previously non-bank of Uganda (BoU) registered
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MFIs or Tier 4 MFIs, namely Finca – Uganda, Uganda Microfinance Union, Pride Uganda, and
Uganda Women's Finance Trust (UWFT), became BoU regulated MFIs following the enactment
of the Micro Finance Deposit-taking Institutions (MDI) Act, 2003.
Windsor Employees Co-operative Savings and Credit Society is a democratic financial

institution formed and funded by the members themselves who fully own and operate it
according to the Working Policy with an aim of improving their social and economic growth. It’s
a continuous institution and entrance is Voluntary. It operates on a principle of equality, equity
and self-help. Registered as No. 6264 under the Co-operative Societies Statute of 1991 and Co-
operative Regulations of 1992, its fully affiliated to Uganda Co-operative Savings and Credit
Union Ltd (UCSCU) and Wakiso Union. It was formed in 1997 as a small-scale financial Project
on a democratic concept of human development to pool together and Credit each other at fair
interest rates. Windsor has played a vital role in reducing poverty in communities and society as
a whole throughout its history. With approximately 110,000 devoted and motivated personnel.
1.1.2 Theoretical Perspective
This study will be guided by two theories namely; Information Asymmetry Theory and Portfolio
Theory however, various theories have been proposed by various scholars to explain Credit
management.
Information asymmetry theory which alludes to a circumstance where entrepreneurs or chief find
out about the prospects for, and dangers confronting their business, then do banks PWHC, (2002)
referred to in Eppy (2005). It portrays a condition in which all gatherings associated with an
endeavor don't know important data. In an obligation showcase, data asymmetry emerges when a
borrower who takes a credit for the most part has better data about the potential dangers and
returns related with investment ventures for which the assets are reserved. The moneylender then
again does not have adequate data concerning the borrower Turnbull and Edwards (1994).
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The second theory will be Portfolio Theory which governs the creation of portfolios that
maximize projected returns while maintaining individual acceptable levels of risk. The theory
provides a framework for calculating and quantifying speculation risk, as well as making
linkages between risk and expected profits. Its core premise is that financial investors typically
need to optimize returns on their investments while assuming a certain level of risk. Because the
profits from each of these speculations are intertwined, the complete spectrum of undertakings
must be addressed. As a result, the link between the earnings for each resource in the portfolio is
critical (Reilly and Brown, 2011).
1.1.3 Conceptual Perspective
Microfinance is a term used to describe small-scale financial services that primarily provide
lending and savings to the poor (Robinson, 2001). Microfinance has expanded to encompass
insurance, housing, and investment services for low-income individuals. It is giving a way for
the impoverished around the world to improve their livelihoods and have a greater impact on
their countries' economic growth.
A Credit portfolio is defined by Business Dictionary (2014) as the total of all Credit held by a
bank or finance company on any particular day. As a result, individual Credit at a bank or other
MFI constitute a Credit portfolio. Furthermore, the size of a Credit portfolio is determined by the
size of each individual Credit, which is impacted by the borrowers' economic position in a given
place.
According to the IACPM (2005), “Credit portfolio management is the process by which risks
inherent in the credit process are managed and controlled”. Credit portfolio management,
according to Wise Geek (2014), is the act of creating a series of investments based on credit
connections and managing the risks associated with these investments. As a result, Credit
portfolio management entails evaluating the risk associated with each Credit and then reviewing
the total amount of hazards associated with all Credit. The main goal of portfolio management is
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to lower the number of defaulted Credit. MFIs lower the risk of Credit portfolio default by taking
into account both individual and corporate credit repayment histories.
Financial performance, according to Gibson (2012), can be defined as how well a financial
institution's financial goals and objectives have been refined or achieved. Financial performance
is the degree of a company's performance over a given period of time, expressed in terms of total
earnings and losses (Gbolagade et al., 2013). Financial performance refers to the measure of a
company's ability to collect revenue from its primary way of operation (Keown, Martin, Petty &
Scott, 2002). This expression is also active as a broad assessment of a company's overall
financial strength over time, and it is a key indicator of organizational performance. Financial
performance (profits, return on assets, return on investment, and so on); product market
performance (sales, market share, and so on); and shareholder return are three distinct categories
of company outcomes (total shareholder return, economic value added, among others).
Profitability, higher sales margin, and increased return on investment were all considered strong
financial performance in this study.
1.1.4 Contextual Perspective
Windsor presently has over 213,072 microfinance members and 102 small enterprise program
branches. Windsor helped to alleviate poverty in 2017 by launching an ultra-poor graduation
initiative for youth. Windsor helps young people in financial difficulty by providing assets and
training to help them better their livelihoods and achieve their economic and social goals,
allowing them to escape extreme poverty (Ndiritu, 2016).
Windsor offers economic Credit facilities to members at affordable interest rates and within a
member’s capacity to repay. These include; Emergency Credit, short term Credit, normal Credit,
medium- and long-term Credit. They lend Money to registered members and those who are not
registered by need emergency and quick Credit. Windsor has regularly monitored the progress of
its Credit on a daily basis to determine the amount of money in their accounts. It has also
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reviewed its position against the targets set in their business plan on a monthly basis.
Additionally, it has also ensured that customers pay back their Credit on time to avoid it running
into major problems because of late Credit payments. It has also used computerized credit
management systems to help keep track of customers' accounts.
However, amidst this, Windsor continues to make losses and struggle with sustainability since its
concern to provide financial services to the economically challenged segments of the society
undermine the drive to profitability just like the drive to profitability undermines the mission to
serve many clients in this segment (Bugonzya, 2005).
1.2 Statement of the Problem
Windsor's survival is largely dependent on the performance of their Credit portfolios. This is
because Windsor makes the majority of their money through interest on Credit to small and
medium-sized businesses. The Credit performance of this institution, however, is determined by
the Credit portfolio management strategies used by the institution (Mbabazi, 2012). Credit
default rates were high at Windsor. For example, in order to comply with Bank of Uganda
requirements, Windsor took a stricter approach to Credit write-offs totaling 200 million in 2020.
(Windsor Financial Report, 2020). In 2020, authorities in Entebbe district detained Windsor
employees for illegally detaining consumers who had failed to pay their Credit.
This issue has had a negative influence on Windsor’s Credit portfolio and financial performance.
This trend jeopardizes the institution's financial viability and sustainability, obstructing the
attainment of the institution's intended goals of providing services to the rural unbanked
population and alleviating poverty by bridging the financing gap in the mainstream financial
sector (Kiplimo and Kalio, 2020). This report lays the groundwork for a study to fill a knowledge
gap by examining the impact of Credit portfolio management on the financial performance of
microfinance institutions in Uganda.
1.3 Specific Objectives
To examine the role of Credit Portfolio data availability on financial performance of Windsor
Micro Finance Entebbe.
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To establish the role of Credit Portfolio performance history on financial performance of
Windsor Micro Finance Entebbe.
To establish the role of Portfolio data quality on financial performance of Windsor Micro
Finance Entebbe.
1.4 Research Questions
What is the role of Credit Portfolio data availability on financial performance of Windsor Micro
Finance Entebbe?
What is the role of Credit Portfolio performance history on financial performance of Windsor
Micro Finance Entebbe?
What is the role of Portfolio data quality on financial performance of Windsor Micro Finance
Entebbe?
1.5 Research Hypothesis
The study will test whether there is:
H0: There is a relationship Between Credit Portfolio Management and financial performance of
micro finance institutions in Uganda
H1: There is No relationship between Credit portfolio management and financial performance of
micro finance institutions in Uganda
1.6 Scope of the study
The study scope will be divided into three categories;
1.6.1 Time scope
The study will cover Windsor for a period of 2018 – 2021. This time is chosen because it is
during this period that Windsor wrote off many bad Credit amounting to 200 million according
to Windsor financial report 2019.
1.6.2 Content Scope
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The study will examine the role of Credit Portfolio data availability on financial performance of
Windsor Micro Finance Entebbe, establish the role of Credit Portfolio performance history on
finance performance of Windsor Micro Finance Entebbe and to establish the role of Portfolio
data quality on financial performance of Windsor Micro Finance Entebbe.
1.6.3 Geographical Scope
The study will be conducted at Windsor Micro Finance located in Entebbe and will establish the
role of Portfolio data quality on financial performance. Entebbe sits on the northern shores of
Lake Victoria, Africa's largest lake. The town is situated in Wakiso District, approximately 34
kilometres (21 mi) south of Kampala, Uganda's capital and largest city.[7] The metropolis is
located on a peninsula into Lake Victoria, covering a total area of 56.2 square kilometres (21.7
sq mi), out of which 20 km2 (7.7 sq mi) is water. The coordinates of Entebbe are:0°03'00.0"N,
32°27'36.0"E (Latitude:0.0500; Longitude:32.4600).[8] Neighborhoods within Entebbe City
include Bugonga, Katabi, Nakiwogo, Nsamizi, Kitooro, Lunnyo and Lugonjo.
1.7 Significance of the study
The study will examine the role of Credit Portfolio data availability on financial performance of
It will establish the role of Credit Portfolio performance history on financial performance of
The study establishes the role of Portfolio data quality on financial performance of Windsor
Micro Finance Entebbe.
1.8 Justification of the study
The survival of MFIs depends entirely on successful lending that revolves on funds and good
Credit repayments by clients. However, for long, the problem of credit failures (default) has
greatly hindered progress in microfinance. In Uganda, MFIs have continued to face on average
20-40% bad debts written off yearly (Mulema, 2019). This crisis is due to poor credit
management and administration, characterized by credit concentration, ineffective Credit
monitoring, delayed identification and initiation of remedial actions in problem exposures;
interference in Credit granting process, inadequate or absence of Credit collateral. These crises
greatly undermine the profitability and financial sustainability of MFIs.
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As a counter-measure to the credit crisis, effective Credit management, with systematic and
logical sequence of activities and processes, has been placed at the center of lending in most
MFIs to help in developing appropriate lending policies, processes and procedures to ensure that
lending is well managed from first contact with borrowers, to analysis, Credit approval,
disbursement, monitoring and recovery.
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CHAPTER TWO
STUDY LITERATURE
2.0 Introduction
This chapter summarizes the information from the available literature in the same field of study.
It reviews theories of credit management as well as empirical studies on credit management and
financial performance in Uganda and in other countries.
2.1 Literature Survey
Muhuma & Murungi (2019) in their study “The Effects of loan portfolio management of
financial performance of commercial banks in Uganda” whose main purpose was to determine
the effects of loan portfolio management on the financial performance of commercial banks in
Uganda. The study objectives were; to determine the effects of loan risk analysis on the financial
performance of commercial banks in Uganda; to determine the impact of risk monitoring on the
financial performance of commercial banks in Rwanda and to evaluate the effects of loan risk
diversification on the financial performance of commercial banks. This study adopted a
descriptive research design in soliciting information on effects of liquidity management
on financial performance of commercial banks. Stratified random sampling was used to
determine the sample size. The study targeted BPR management and employees totaling to 110
respondents, the sample size was 87 respondents. The study used both primary and secondary
data, where questionnaires, interview and annual reports of BPR was used. Primary quantitative
data was collected by use of self-administered structured questionnaires. Despite all efforts put
by the researcher, their study never examined the role of Credit Portfolio data availability on
financial performance a gap this study intends to close.
From the study conducted by Wamala (2019) on loan portfolio management and performance of
MFLs in Uganda the study found out that loan portfolio, client screening and portfolio control
significantly affect firm performance. The study was inconformity with the results obtained by
loan analysis (2004), Martin (1996), and Antonia (2001). However, all this study didn’t examine
the effect of internal control as a moderating variable on loan portfolio management and
performance of MFLs. Most of the studies review in empirical literature only concentrated on
measuring performance using financial indicators and not as stated by Norton and Kaplan
(2001).
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From the empirical literature review it’s evident that most of the studies done in Kenya on MFLs
have been biased on one side, measuring performance only using financial indicators but Kaplan
and Norton (2001) stated that for one to measure performance effectively in an organization then
you need to consider financial and non-financial indicators. Most of the studies that have been
conducted on loan portfolio management utilized financial indicators being the dominant
denominator in the literature review, none of the studies has gone ahead to study on how to
reduce loan defaults rate in micro financial institution by way of studying loan portfolio
management and performance in Uganda, hence this paper opens a platform for a study to be
carried out to fill this cap through studying the relationship between loan portfolio management
and performance (financial and non-financial measures) in Micro Financial institution.
David who has written extensively on microfinance and credit portfolio management, including a
study on the impact of loan portfolio size on MFI performance. One gap is the lack of consistent
definitions and measurements of credit portfolio management practices and financial
performance. Different studies may use different methods to measure credit portfolio
management practices and financial performance, making it difficult to compare results across
studies.
Another gap is the limited scope of the studies, many of them are focused on specific regions,
countries or type of MFIs which may limit the generalizability of the findings to other contexts.
Additionally, many of these studies have a cross-sectional design, which means they only look at
a snapshot of data at one point in time. This makes it difficult to establish causality between
credit portfolio management practices and financial performance. Longitudinal studies, which
track data over a period of time, would provide a more comprehensive understanding of the
relationship between credit portfolio management and financial performance.
Beatriz Armendáriz and Matthew Conroy, who have conducted research on the impact of credit
portfolio management on the financial performance of MFIs, focusing on the role of loan
diversification and the use of credit scoring models. David Hulme and Paul Mosley, who have
conducted research on the impact of credit portfolio management on the financial performance of
MFIs, focusing on the role of financial intermediaries and the use of microfinance information
systems.
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2.2. Theoretical Review
Portfolio Theory:
Portfolio theory manages the determination of portfolios that boost expected returns predictable
with the individual satisfactory levels of hazard. The theory gives a structure to determining and
measuring speculation hazard and to create connections amongst risk and expected returns. Its
principle essential supposition is that financial investors frequently need to maximize returns
from their ventures for a given level of risk. The full range of ventures must be considered in
light of the fact that the profits from every one of these speculations cooperate henceforth the
connection between the profits for a resource in the portfolio is imperative Reilly and Brown,
(2011). In investment, portfolio theory administration is a basic theory.
It tries to search for the most effective mixes of advantages for boost portfolio expected returns
for given level of risk. Then again, limit risk for a given level of expected return. From this
theory, it is apparent that the level of hazard in a portfolio relies upon danger of every benefit,
extent of assets distributed on every advantage and the interrelationship between the benefits
making up the portfolio. The significant suspicions in portfolio theory in overseeing hazard
are that the investors are objective and the market is proficient and culminate Chijoriga,
(2007), Mutua (2016)This theory is relevant to this paper in the sense that it brings out
how loan portfolio can be managed to bring about profitability in the Micro financial
institutions and reduce loan defaults.
Information Asymmetry Theory:
The idea of asymmetric information was first presented in George A. Akerlof's 1970 Paper. The
Market for "Lemons": Quality Uncertainty and the Market Mechanism. In the paper, Akerlof
creates uneven data with the illustration instance of vehicle advertise. His essential contention is
that in many markets the purchaser utilizes some market measurement to gauge the estimation of
a class of products. Therefore, the purchaser sees the normal of the entire market while the dealer
has more cozy information of a particular thing.
Akerlof contends that this data asymmetry gives the vender a motivation to offer products of not
as much as the normal market quality. The normal nature of products in the market will then
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decrease as will the market estimate. Such contrasts in social and private returns can be
alleviated by various distinctive market organizations.
Auronen (2003) According to this investigation Information asymmetry alludes to a

circumstance where entrepreneurs or chief find out about the prospects for, and dangers
confronting their business, than do banks PWHC, (2002) referred to in Eppy.I (2005).It portrays
a condition in which all gatherings associated with an endeavor don't know important data. In an
obligation showcase, data asymmetry emerges when a borrower who takes a credit for the most
part has better data about the potential dangers and returns related with investment ventures for
which the assets are reserved. The moneylender then again does not have adequate data
concerning the borrower Turnbull and Edwards (1994).
Binkset al (1992) call attention to that apparent data asymmetry postures two issues for the
banks, moral danger (checking entrepreneurial conduct) and antagonistic choice (settling on
blunders in loaning choices). Banks will think that it’shard to beat theseissues since it isn't
sparing to commit assets to examination and checking where loaning is for generally little sums.
This is on the grounds that information expected to screen credit applications and to screen
borrowers are not uninhibitedly accessible to banks. Brokers confront a circumstance of data
asymmetry while evaluating loaning applications Ennew and Binks (1997). The data required to
evaluate the capability and responsibility of the business visionary, and the possibilities of the
business is either not accessible, uneconomic to get or hard to decipher. This makes two sorts of
dangers for the Banker Deakins, (1999). The danger of unfavorable choice which happens when
banks loan to organizations which in this way come up short (typeII mistake),or when they don't
loan to organizations which go ahead to wind up" fruitful, or can possibly do as such (typeI
blunder) Altman (1971)Gatuhu (2013).
Asymmetry theory is relevant for this study as it explains that borrowers may take advantage of
the superior knowledge, they have over lenders in this case MFI’s to hide some information
which is only known by them. Any information they perceive will be at their detriment in the
loan application process will most likely be omitted or hidden.
2.3 Credit Portfolio Management history and Financial Performance
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According to Pyle (1997), unless a seller has built into his selling price additional costs for late
payment, or is successful in recovering those costs by way of interest charged, then any overdue
account will affect his profit. In some competitive markets, companies can be tempted by the
prospects of increased business if additional credit is given, but unless it can be certain that
additional profits from increased sales will outweigh the increased costs of credit, or said costs
can be recovered through higher prices, then the practice is fraught with danger. According to
Koch and MacDonald (2019), a bank's profitability is directly proportional to the riskiness of its
portfolio and operations. As a result, banks must understand which risk variables have a higher
impact on profitability, which ultimately leads to bank financial performance, in order to
increase return. Credit risk is the most important aspect for commercial banks, as we indicated in
the previous section. This indicates that there is a high likelihood that credit risk will have an
impact on profitability.
Myers and Brealey (2013) describe credit management as methods and strategies adopted by a
firm to ensure that they maintain an optimal level of credit and its effective management. It is an
aspect of financial management involving credit analysis, credit rating, credit classification and
credit reporting.
A proper credit management will lower the capital that is locked with the debtors, and also
reduces the possibility of getting into bad debts. According to Edwards (1993), unless a seller
has built into his selling price additional costs for late payment, or is successful in recovering
those costs by way of interest charged, then any overdue account will affect his profit.
In some competitive markets, companies can be tempted by the prospects of increased business
if additional credit is given, but unless it can be certain that additional profits from increased
sales will outweigh the increased costs of credit, or said costs can be recovered through higher
prices, then the practice is fraught with danger. Most companies can readily see losses incurred
by bad debts, customers going into liquidation, receivership or bankruptcy. The writing-off of
bad debt losses visibly reduces the Profit and Loss Account. The interest cost of late payment is
less visible and can go unnoticed as a cost effect. It is infrequently measured separately because
it is mixed in with the total bank charges for all activities. The total bank interest is also reduced
by the borrowing cost saved by paying bills late.
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Credit managers can measure this interest cost separately for debtors, and the results can be seen
by many as startling because the cost of waiting for payment beyond terms is usually ten times
the cost of bad debt losses. Effective management of accounts receivables involves designing
and documenting a credit policy. Many entities face liquidity and inadequate working capital
problems due to lax credit standards and inappropriate credit policies. According to Pike and
Neale (1999), a sound credit policy is the blueprint for how the company communicates with and
treats its most valuable asset, the customers.
Scheufler (2012) proposes that a credit policy creates a common set of goals for the organization
and recognizes the credit and collection department as an important contributor to the
organization's strategies. If the credit policy is correctly formulated, carried out and well
understood at all levels of the financial institution, it allows management to maintain proper
standards of the bank Credit to avoid unnecessary risks and correctly assess the opportunities for
business development.
Pyle (1997), in his study on bank risk management held that banks and similar financial
institutions need to meet forthcoming regulatory requirements for risk measurement and capital.
However, it is a serious error to think that meeting regulatory requirements is the sole or even the
most important reason for establishing a sound, scientific risk management system. It was held,
managers need reliable risk measures to direct capital to activities with the best risk/reward
ratios. They need estimate of the size of potential losses to stay within limits imposed by readily
available liquidity, by creditors, customers and regulators. They need mechanisms to monitor
positions and create incentives for prudent risk taking by divisions and individuals.
Nagarajan (2019) in his study of risk management for microfinance institutions in Uganda found
that risk management is a dynamic process that could ideally be developed during normal times
and tested at the wake of risk. It requires careful planning and commitment on part of all
stakeholders. It is encouraging to note that it is possible to minimize risks related losses through
diligent management of portfolio and cash-flow, by building robust institutional infrastructure
with skilled human resources and inculcating client discipline, through effective coordination of
stakeholders.
Achou and Tenguh (2018) also conducted research on bank performance and credit risk
management found that there is a significant relationship between financial institutions
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performance (in terms of profitability) and credit risk management (in terms of Credit
performance). Better credit risk management results in better performance. Thus, it is of crucial
importance that financial institutions practice prudent credit risk management and safeguarding
the assets of the institutions and protect the investors "interests. This is also true for micro
finance institutions. Method used by the researchers is mixed research method.
Matu (2018) carried out a study on sustainability and profitability of microfinance institutions
and noted that efficiency and effectiveness were the main challenges facing Kenya on service
delivery.
Soke Fun Ho and Yusoff (2019), in their study on credit risk management strategies of selected
financial institutions in Malaysia the majority of financial institutions and banks losses stem
from outright default due to inability of customers to meet obligations in relation to lending,
trading, settlement and other financial transactions. Credit risk emanates from a bank's dealing
with individuals, corporate, financial institutions or sovereign entities. A bad portfolio may
attract liquidity as well as credit risk. The aim of credit risk management is to maximize a bank's
risk-adjusted rate of return by maintaining credit risk exposure within acceptable boundary. The
efficient management of credit risk is a vital part of the overall risk management system and is
crucial to each bank's bottom and eventually the survival of all banking establishments. It is
therefore important that credit decisions are made by sound analyses of risks involved to avoid
harms to bank's profitability. They held effective management of credit risk is an essential
component of a comprehensive technique to risk management and critical to the long-term
success of all banking institutions.
Orua (2019) did a study on the relationship between capital structure and financial performance
of microfinance institutions in Kenya it revealed that short-term debt significantly impacted MFI
outreach positively. Long term debt however showed positive relationship with outreach but was
not significant with regard to default rates, both short- and long-term debts showed expected
results but were not significant indicating that maturity may not necessarily be of essence.
Generally, highly leveraged MFIs were found to perform better by reaching out to more clients.
It was also revealed that such MFIs also enjoyed economies of scales and therefore were better
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able to deal with moral hazards and adverse selections which also enhanced their ability to
manage risks.
Sindani (2012) in her study on Effectiveness of Credit Management System on Credit

Performance: Empirical Evidence from Micro Finance Sector in Uganda found out that Credit
terms formulated by the microfinance institutions do affect Credit performance; the involvement
of credit officers and customers in formulating credit terms affects Credit performance. Interest
rates charged had a negative effect on the performance of the Credit, the higher the interest rates
the lower the Credit performance.
Credit risk controls adopted by microfinance institutions have an effect on Credit performance,
credit insurance, signing of covenants with customers, diversification of Credit, credit rating of
customers, reports on financial conditions, refrain from further borrowing had an effect on Credit
performance. Collection policies adopted by microfinance institution had an effect on Credit
performance, stringent policy had a great impact on Credit performance, and the lenient policy
had an effect but was not as great as that of stringent policy.
Wangechi (2012) in her study on Factors influencing sustainability of microfinance institutions

in Uganda studied Uganda Women Finance Trust and found out that that the quality of service
delivered influenced UWFT Sustainability by attracting new customers through word of mouth
advertising, improving on the reputation of the organization, improving financial performance
and profitability, lowering operating costs and also increased customer retention rates hence
boosting the overall quality of the organization. She also found out that staff competencies
contributed to increased efficiency and that training boost employees" morale hence
sustainability and that that the staffs at UWFT had all the needed skills to effectively carry their
duties efficiently and that lack of training attributed to poor performance of UWFT. The study
concluded that the level of education of the staff contributed to increased efficiency at UWFT.
The chapter begun by providing a brief discussion on key theoretical approaches and findings
reported in earlier related studies credit management and financial performance, Key theoretical
approaches discussed are Asymmetric Information Theory and Transactions costs theory. The
chapter also concentrated on empirical facets of credit management and financial performance.
Local studies that have been done on microfinance sector do not focus on the effect of credit
16
management on the financial performance of MFIs; there is therefore a gap in the empirical
evidence available. The study sought to bridge the gap.
2.4 Credit Portfolio data quality and financial performance of financial institutions.
Credit portfolio data quality ensures financial performance of financial institutions. According to
Saunders (2018), Risk management and regulatory compliance both are strongly impacted by the
credit portfolio data quality. If the customer data is incomplete or not updated, the results can
severely affect the credibility and bottom-line. Moreover, financial services are always time-
sensitive where a single data error quickly multiplies in the downstream processes and is not
easy to fix in time.
Saunders (2019), while data quality in financial services indicates if data is fit for use,
its dimensions of completeness, timeliness, accuracy, and validity ensure compliance with the
regulations. Data integrity, safeguarding the relationships of entities across the organization, is
essential for managing risks.
Customer data Saunders (2018) can drift and lose integrity over time affecting financial
performance of the. Change of addresses or phone numbers may not get updated immediately.
Added applications and new data sources may not get reconciled correctly. These data quality
issues in financial services directly impact customer experience, interactions, and transactions,
resulting in higher costs and lost revenue.
Murinde (2019) stated that financial services use the same data in reporting, analytics, and
forecasting. Data quality issues lead to bad decisions and weak strategic planning, leading to
higher expenses and lost customers.
James (2015) sated that Leveraging technologies for improving the efficiency and performance
of financial services requires high-quality data to train the machine learning models. Once
deployed, the models again need high-quality data to deliver trusted insights. Gartner
recognizes data quality as one of the main barriers to the adoption of AI in financial services.
According to Bohnstedt (2020) non-compliance due to poor data quality results in regulatory
penalties that ultimately damages brand equity. Constantly monitoring foreign exchange rates;
The world engages in foreign exchange (FX) transactions through more than 28,000 currency
17
pairs that constantly fluctuate. Most banks work with a focused list of FX pairs, combining them
with other financial data to run analytics.
Martin et al (2016) observed that, monitoring the quality for such a large data set throughout the
day is laborious, demanding hundreds of manual rules for duplicate detection, anomaly
detection, or correlations.
Predictive data quality can automatically alert incorrect FX rate data without writing a single
rule. With the ML-powered auto-learning approach, predictive data quality runs quality tests
against each data set individually to deliver the best and consistent controls across all data sets.
Predictively tracking intraday positions; Financial organizations process large volumes of near-
real-time data on intraday positions. Tracking the positions is a challenging task, especially for
correct correlation and no duplicates for any company. When a specific company does not trade
or adjust its position in the day, the missing records also must not raise any false alarm ACCA
(2015). Predictive data quality offers real-time outlier and duplicate detection, delivering only
the highest quality data pipelines feeding the analytical models.
Identifying anomalies and hidden patterns in the security reference data; Financial firms of all
shapes and sizes ingest reference data from various vendors such as Bloomberg, Thomson
Reuters, ICE Data Services, or SIX Financial Information Antonio (2020). Accuracy of this data
is critical for data-driven business decisions, and identifying anomaly values earlier in the data
ingestion process significantly reduces downstream complexity. Another factor that affects the
quality of data generated by reporting, exchanges, and source systems is hidden patterns. Finding
improbable patterns before they get used in data-driven decisions can considerably save the
remediation efforts.
Garber, 2018. Stated that, managing credit risk in bank lending; Lending is a significant financial
activity for banks, which comes with its own risks. Banks need to be vigilant throughout the
Credit underwriting and approval process, validating data at every stage to minimize the credit
risk.
18
Monitoring frauds and cyber anomalies in real time; Financial services work with sensitive data,
and the value of this data makes them vulnerable to cyber threats. Technology-enabled internet
and mobile banking expose online financial transactions to possible security breaches Antonio
(2020). As a result, financial organizations are increasingly turning to automation for detecting
and defending against cyber-attacks. The predictive data quality can continuously load and
process diverse security data feeds at scale for detecting network data anomalies. With timely
alerts, network and cybersecurity experts can respond quickly to possible threats.
Enhanced data quality contributes to increased decision-making in a financial institution. The

better-quality data you have, the greater the certainty you will have in your choices. Good data
eliminates risk and can lead to consistent results improvements.
Berger and Gregory (2018), getting reliable data at your disposal also improves the productivity
of a financial sector. Suppose the information is not consistent or complete. In that case, most
financial sector results in a situation where they have to spend a considerable amount of time
repairing their information to make it accessible. This takes time away from other operations and
suggests that it takes longer to apply the discovery revealed by the organization’s data. Quality
data also helps maintain the different departments of the financial organization on the same
board so that they can function more closely together Martin et al (2021).
A financial organization can achieve a comparative edge if there is higher quality data than their
competitors or use if they make use of data more successfully than their competitors. Data is one
of the major assets that today’s organizations have, as long as it is of good quality Antonio
(2020). Higher data quality implies that you can find opportunities before your rivals do. With
good quality data in finance, organizations can predict the needs of prospects and, therefore,
overtake sales competitors. A lack of good data implies that chances are lost and slipping behind
the competition.
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High-quality data, which is vital for success in every sector, will also help you strengthen their
relationships with customers. Collecting details from customers helps the sector to know them
better. Financial sectors can make use of details about your consumers’ interests, preferences,
and wants to give them content that relates to them and anticipates their demands. This will assist
the financial sectors in establishing close ties with their customers. Adequate data protection also
helps prevent an organization from supplying customers with monotonous content, which can be
irritating to their customers and damage their credibility. Antonio (2020).
2.5 Financial Performance
According to Hermes and Lensink (2017), the financial systems approach, which emphasizes the
importance of financial sustainable microfinance programs, is likely to prevail the poverty
lending approach. The argument is that microfinance institutions have to be financially
sustainable in order to guarantee a large-scale outreach to the poor on a long-term basis.
Measuring and comparing the performance of MFIs has been difficult due to both a lack of
publicly available financial information and differences in reporting in a mostly non-regulated
industry. (Michael and Miles, 2017) A myriad of financial ratios are available for assessing the
performance of MFIs (CGAP 2013) The Seep Network and Alternative Credit Technologies,
2015) Although it is difficult to synchronize the different interpretations of all the ratios, they
provide alternative perspectives in assessing the performance of MFIs for each of the domains
namely, profitability, efficiency, leverage and risk .1n essence, interpreting the determinants of
MFIs' financial performance due cognizance should be taken of the precise focus of each ratio.
Return on Assets (ROA) falls within the domain of performance measures and tracks MFIs'
ability to generate income based on its assets. The ratio excludes non-operating income and
donations. ROA provides a broader perspective compared to other measures as it transcends the
core activity of MFIs namely, providing Credit, and tracks income from operating activities
including investment, and also assesses profitability regardless of the MFIs funding structure.
ROA is expected to be positive as a reflection of the profit margin of the MFI, otherwise it
reflects non-profit or loss. In banks and other commercial institutions, the commonest measures
of profitability are Return on Equity (ROE), which measures the returns produced for the
owners, and Return on Assets (ROA), which reflects that organization's ability to use its assets
productively.
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2.6 Conceptual Framework
Independent variable Dependent variable
Credit portfolio management Financial Performance

 Profitability
 Portfolio data availability
 Increased sales margin
 Portfolio performance
 Return on investment
history
 Portfolio data quality
Intervening Variable
 Government policies
Figure 2. 1: Conceptual Framework
Source: Adopted from Mehta, (2019) and modified by the researcher 2019. The conceptual
framework above depicts the relationship between the independent variable, Credit Portfolio
Management, which consists of Portfolio data availability, Portfolio performance history,
Portfolio data quality while the dependent variable financial performance is measured in terms
of; profitability, increased sales margin and return on investment. It assumes that once the
dimensions of the independent variable mentioned above are in place, then the outcome will be
better Credit performance of non-deposit taking MFIs. However, the study recognizes that there
are variables such as government regulations that intervene in Credit portfolio management,
thereby affecting Credit portfolio performance
21
CHAPTER THREE: METHODOLOGY
3.1 Introduction
This chapter presents the methodology that will be used to carry out this study. Research
methodology is defined as an operational framework within which the facts are placed so that
their meaning may be seen more clearly. The task that follows the definition of the research
problem is the preparation of the design. The methodology of this research includes the research
design, population to be studied and sampling strategy, the data collection process, the
instruments used for gathering data, and how data was analyzed and presented.
3.2 Research Design
The study will adopt a descriptive survey design. Descriptive research will be used to obtain
information concerning the current status of the phenomena to describe "what exists" with
respect to variables or conditions in a situation. The technique will be appropriate as it involves
careful in-depth study and analysis on the effect of credit management on the financial
performance of MFIs in Uganda.
3.3 Research approach
Research approaches is defined as the collection of procedures and plans that decide the overall
process of research. Research approach decides the methods for data collection, analysis, and
interpretation. The concept of research approach is followed in the entire research process. There
are many factors the selection of research approach, such as, research objective, experience of
research, and the audience of research study.
The study will use qualitative research approach. It is considered as the prior stage of
quantitative research. In this approach, the researchers generate various ideas and concepts that
can be converted into logical and testable hypotheses in future. These hypotheses can then be
comprehensively tested and analyzed using various techniques that come under the purview of
quantitative research. For example, a survey can be conducted before the launch of a shampoo
brand. This survey can find several popular brands. Quantitative research can then be conducted
around these brands, so that a lot of time, effort, and resources can be saved.
3.4 Research Classification
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This study will use a Cross-sectional research design. It will be used to observe phenomena, an
individual or a group of research subjects at a given time.
3.5 The research duration.
The study will be carried out within in a period of 6 months. It was started in September 2022
and will be concluded in January 2023.
3.6 Target Population
Target population is the specific population about which information is desired. According to
Ngechu (2018), a population is a well-defined or set of people, services, elements, events, group
of things or households that are being investigated. This definition ensures that population of
interest is homogeneous. The population of the study will consist of 65 respondents that are the
members of BMF from which 56 respondents will be selected and questionnaire will be
administered to them for filling, census study will also be used to carry out the research.
3.7 Sampling design and sample size
Simple Random Sampling is one in which each element of the target population has an equal
chance of being selected (Babbie, 2012). The researcher assigns a number to each element in the
list and then uses a table of random numbers which is normally constructed in a way that each
entry has an equal probability of being selected. Bernard (2019) observed that depending on the
sample size, various types of simple random sampling include: tossing a coin, tossing a dice,
raffle, drawing lots and use of random numbers. The researcher will use simple random sampling
to select 56 respondents from 65 target population. The target population of this study will
therefore be 65 respondents. This will be determined by Krejcie & Morgan (1970) Sample Size
determination table (Appendix I).
23
Table 3.1: Sample Size Determination
Category Population Sample Sampling Technique
Credit officers 10 10 Simple random sampling
Clients 44 35 Random sampling
Finance 6 6 Simple random sampling
Administrators 5 5 Simple random sampling
Total 65 56
Source: Primary Data (2022)
3.8 Data Collection
The researcher will use primary data (questionnaires) to carry out the study. This will include
questionnaires that will consist of structured (close-ended) and unstructured (open-ended)
questions and will be administered through drop and pick method to respondents. The structured
questions will be used in an effort to conserve time and money as well as to facilitate in easier
analysis as they are in immediate usable form; while the unstructured questions will be used so
as to encourage the respondent to give an in-depth and felt response without feeling held back in
revealing of any information. With unstructured questions, a respondent’s response may give an
insight to his feelings, background, hidden motivation, interests and decisions and give as much
information as possible without holding back.
3.9 Validity
Mugenda and Mugenda (2013) asserted that, the accuracy of data to be collected largely depends
on the data collection instruments in terms of validity and reliability. Validity as noted by
Robinson (2012) is the degree to which result obtained from the analysis of the data actually
represents the phenomenon under study. Validity will be ensured by having objective questions
included in the questionnaire. This will be achieved by pre-testing the instrument to be used to
identify and change any ambiguous, awkward, or offensive questions and technique as
emphasized by Cooper and Schindler (2013).
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310 Reliability
Reliability refers to a measure of the degree to which research instruments yield consistent
results (Mugenda & Mugenda, 2013). In this study, reliability will be ensured by pre-testing the
questionnaire with a selected sample from one of the schools which will not be included in the
actual data collection. This will be represented be 2% of the entire sample size used in the study.
The pre-test will be conducted by both the principal researcher and the research assistant to
enhance clarity of the questionnaires. The pre-test exercise will take place at the convenience of
both the researcher and the research assistance.
3.11 Data Analysis
Data analysis will use SPSS and Microsoft excel, percentages, tabulations, means and other
central tendencies. Tables will be used to summarize responses for further analysis and facilitate
comparison. This will be used to generate quantitative reports through tabulations, percentages,
and measure of central tendency.
Cooper and Schindler (2013) notes that the use of percentages is important for two reasons; first
they simplify data by reducing all the numbers to range between 0 and 100. Second, they
translate the data into standard form with a base of 100 for relative comparisons.
Data will be analyzed using descriptive and inferential statistics. This will enable the researcher
to make possible predictions about the study. The descriptive statistical tools will help the
researcher to describe the data and determine the extent to be used. The findings will be
presented using tables and charts.
3.11 Ethical Consideration
The research process will be guided by sound ethical principles which include the followings: -
Voluntarism: the researcher will ensure that respondents are not coerced or manipulated into
participating in the study. Respondents will be told the purpose of the study and their consent to
participate in the study will be sought.
Objectivity: The researcher will also ensure objectivity when carrying out the research, any
attempt to bias results will be considered unethical and will therefore be avoided.
25
Confidentiality: The respondents will be assured of confidentiality and anonymity. Their names
will not be written anywhere in the report and the information given will be used for academic
purposes.
Respect: The researcher will ensure respect for the respondents. It will encompass respecting the
opinion of the respondents including the opinion to terminate the interview whenever they feel
uncomfortable to continue and adopting an appropriate questioning style especially for personal
and sensitive questions.
26
Chapter four
Table 4.1 Portfolio data availability increases profitability of the organization.
Response Frequency Percentage
Strongly Agree 17 30
Agree 16 29
Neutral 6 11
Disagree 8 14
Strongly Disagree 9 16
Total 56 100
Table 4.1 shows the responses to a statement regarding the impact of portfolio data availability
on organizational profitability. The data is presented in both frequency and percentage format.
The table indicates that out of the total number of respondents, 17 (30%) strongly agree that
portfolio data availability increases profitability, while 16 (29%) simply agree with the
statement. 6 (11%) respondents are neutral on the matter. 8 (14%) respondents disagree that
portfolio data availability increases profitability, while 9 (16%) strongly disagree with the
statement. The majority of respondents either strongly agree or agree that portfolio data
availability increases organizational profitability, while a significant portion either disagree or
strongly disagree with the statement. The neutrality of some respondents suggests that the impact
of portfolio data availability on organizational profitability may not be entirely clear cut and may
depend on a variety of factors.
Table 4.2 Portfolio performance history ensures increased sales margin
Agree 22 39
Neutral 4 7
27
Disagree 11 20
Total 56 100
Table 4.2 presents the responses to a statement regarding the impact of portfolio performance
history on sales margin. The data is presented in both frequency and percentage format.
portfolio performance history ensures increased sales margin, while 22 (39%) simply agree with
the statement. 4 (7%) respondents are neutral on the matter. 11 (20%) respondents disagree that
portfolio performance history ensures increased sales margin, while 7 (13%) strongly disagree
with the statement.
The majority of respondents either strongly agree or agree that portfolio performance history
ensures increased sales margin, while a significant portion either disagree or strongly disagree
with the statement. The neutrality of some respondents suggests that the impact of portfolio
performance history on sales margin may not be entirely clear cut and may depend on a variety
of factors. It is important for organizations to carefully consider the specific types of
performance metrics that are most relevant to their portfolio management strategies and ensure
that they have effective processes in place for analyzing and utilizing this information.
Table 4.3 Portfolio data quality promotes return on investment
Agree 28 50
Neutral 0 0
Disagree 7 13
Total 56 100
28
Table 4.3 presents the responses to a statement regarding the impact of portfolio data quality on
return on investment (ROI). The data is presented in both frequency and percentage format.
portfolio data quality promotes ROI, while 28 (50%) simply agree with the statement. There
were no respondents who were neutral on the matter. 7 (13%) respondents disagree that portfolio
data quality promotes ROI, while 5 (9%) strongly disagree with the statement.
Overall, a majority of respondents either strongly agree or agree that portfolio data quality
promotes ROI, while a small portion either disagree or strongly disagree with the statement. The
absence of neutral responses suggests that the impact of portfolio data quality on ROI may be
more clear cut than the previous two statements. However, it is important for organizations to
carefully consider the specific types of data quality metrics that are most relevant to their
portfolio management strategies and ensure that they have effective processes in place for
collecting and utilizing this information.
Table 4.4 Credit portfolio data availability ensures risk Identification
Agree 28 50
Neutral 0 0
Disagree 6 11
Total 56 100
Table 4.4 presents the responses to a statement regarding the impact of credit portfolio data
availability on risk identification. The data is presented in both frequency and percentage format.
29
credit portfolio data availability ensures risk identification, while 28 (50%) simply agree with the
statement. There were no respondents who were neutral on the matter. 6 (11%) respondents
disagree that credit portfolio data availability ensures risk identification, while 4 (7%) strongly
disagree with the statement.
Overall, a majority of respondents either strongly agree or agree that credit portfolio data
availability ensures risk identification, while a small portion either disagree or strongly disagree
with the statement. The absence of neutral responses suggests that the impact of credit portfolio
data availability on risk identification may be more clear cut than the first statement. However, it
is important for organizations to carefully consider the specific types of credit portfolio data that
are most relevant to their risk management strategies and ensure that they have effective
processes in place for collecting and utilizing this information.
Table 4.5 A good credit data gives you leverage to negotiate a lower interest rate
Agree 30 54
Neutral 0 0
Disagree 4 7
Total 56 100
Table 4.5 presents the responses to a statement regarding the impact of good credit data on the
ability to negotiate a lower interest rate. The data is presented in both frequency and percentage
format.
good credit data gives leverage to negotiate a lower interest rate, while 30 (54%) simply agree
with the statement. There were no respondents who were neutral on the matter. 4 (7%)
30
respondents disagree that good credit data gives leverage to negotiate a lower interest rate, while
12 (21%) strongly disagree with the statement.
Findings indicated that the majority of respondents either strongly agree or agree that good credit
data gives leverage to negotiate a lower interest rate, while a smaller portion either disagree or
strongly disagree with the statement. The absence of neutral responses suggests that the impact
of good credit data on negotiating a lower interest rate may be relatively clear cut. However, it is
important for organizations to carefully consider the specific types of credit data that are most
relevant to their negotiations and ensure that they have effective processes in place for utilizing
this information in a strategic manner.
31
Table 4.6 Good credit data helps to save money which can be used on insurance
Agree 25 45
Neutral 6 11
Disagree 4 7
Total 56 100
Table 4.6 presents the responses to a statement regarding the impact of good credit data on the
ability to save money for use on insurance. The data is presented in both frequency and
percentage format.
good credit data helps to save money which can be used on insurance, while 25 (45%) simply
agree with the statement. 6 (11%) respondents were neutral on the matter. 4 (7%) respondents
disagree that good credit data helps to save money for use on insurance, while 11 (20%) strongly
disagree with the statement.
The majority of respondents either strongly agree or agree that good credit data helps to save
money for use on insurance, while a smaller portion either disagree or strongly disagree with the
statement. However, the presence of neutral responses suggests that the impact of good credit
data on saving money for insurance may be more nuanced and dependent on specific
circumstances. Organizations should carefully consider the types of credit data that are most
relevant to their insurance-related activities and ensure that they have effective processes in place
for utilizing this information in a strategic manner.
32
Table 4.7 It can be used as bargaining power for Credit interests.
Strongly Agree 8 14
Agree 30 54
Neutral 6 11
Disagree 4 7
Total 56 100
Table 4.7 presents the responses to a statement regarding the impact of credit data as bargaining
power for credit interests. The data is presented in both frequency and percentage format.
The table indicates that out of the total number of respondents, 8 (14%) strongly agree that credit
data can be used as bargaining power for credit interests, while 30 (54%) simply agree with the
statement. 6 (11%) respondents were neutral on the matter. 4 (7%) respondents disagree that
credit data can be used as bargaining power for credit interests, while 8 (14%) strongly disagree
with the statement.
Overall, a majority of respondents either strongly agree or agree that credit data can be used as
bargaining power for credit interests, while a smaller portion either disagree or strongly disagree
with the statement. However, the presence of neutral responses suggests that the impact of credit
data as bargaining power for credit interests may be more nuanced and dependent on specific
circumstances. Organizations should carefully consider the types of credit data that are most
relevant to their credit-related activities and ensure that they have effective processes in place for
utilizing this information in a strategic manner.
33
Table 4.8 It helps in evaluation of individual Credit which depends on the availability of
portfolio data.
Agree 25 45
Neutral 5 9
Disagree 9 16
Total 56 100
Table 4.8 presents the responses to a statement regarding the impact of portfolio data availability
on the evaluation of individual credit. The data is presented in both frequency and percentage
format.
portfolio data availability helps in the evaluation of individual credit, while 25 (45%) simply
agree with the statement. 5 (9%) respondents were neutral on the matter. 9 (16%) respondents
disagree that portfolio data availability helps in the evaluation of individual credit, while 4 (7%)
strongly disagree with the statement.
Since the majority of respondents either strongly agree or agree that portfolio data availability
helps in the evaluation of individual credit, while a smaller portion either disagree or strongly
disagree with the statement. However, the presence of neutral responses suggests that the impact
of portfolio data availability on individual credit evaluation may be more nuanced and dependent
on specific circumstances.
34
Objective 2: Credit Portfolio Management history and Financial Performance
Table 4.9: A firm to ensure that they maintain an optimal level of credit
Agree 21 38
Neutral 8 14
Disagree 4 7
Total 56 100
Table 4.9 presents the responses to a statement regarding the importance of maintaining an
optimal level of credit. The data is presented in both frequency and percentage format.
The table indicates that out of the total number of respondents, 18 (32%) strongly agree that a
firm should ensure that they maintain an optimal level of credit, while 21 (38%) simply agree
with the statement. 8 (14%) respondents were neutral on the matter. 4 (7%) respondents disagree
that a firm should maintain an optimal level of credit, while 5 (9%) strongly disagree with the
statement.
The majority of respondents either strongly agree or agree that maintaining an optimal level of
credit is important for a firm, while a smaller portion either disagree or strongly disagree with the
statement. Thes presence of neutral responses suggests that the importance of maintaining an
optimal level of credit may be more nuanced and dependent on specific circumstances.
Organizations should carefully consider the types of credit data and portfolio information that are
most relevant to their credit management activities and ensure that they have effective processes
in place for maintaining an optimal level of credit.
35
Table 10: Credit management will lower the capital that is locked with the debtors, reduces the
possibility of getting into bad debts.
Agree 27 48
Neutral 0 0
Disagree 5 9
Total 56 100
Table 10 presents the responses to a statement regarding the potential benefits of credit
management. The data is presented in both frequency and percentage format.
credit management will lower the capital that is locked with the debtors and reduces the
possibility of getting into bad debts, while 27 (48%) simply agree with the statement. There were
no neutral responses recorded. 5 (9%) respondents disagree that credit management will provide
these benefits, while 5 (9%) strongly disagree with the statement.
a majority of respondents either strongly agree or agree that credit management can help to lower
the capital locked with the debtors and reduce the risk of bad debts. This suggests that effective
credit management is seen as an important strategy for managing financial risk within an
organization. However, there were some respondents who disagreed with the statement or had a
neutral response, indicating that there may be different perspectives or experiences with credit
management across different organizations and industries. It is important for organizations to
carefully evaluate the potential benefits and challenges of credit management and to develop
effective strategies for managing credit risk.
36
Table 11: It visibly reduces the Profit and Loss Accounts
Agree 19 34
Neutral 9 16
Disagree 3 5
Total 56 100
Table 11 presents the responses to a statement regarding the potential impact of credit
management on Profit and Loss Accounts. The data is presented in both frequency and
percentage format.
credit management visibly reduces the Profit and Loss Accounts, while 19 (34%) simply agree
with the statement. 9 (16%) respondents recorded a neutral response. 3 (5%) respondents
disagree with the statement, while 9 (16%) strongly disagree with it.
The data suggests that there is some disagreement among respondents regarding the impact of
credit management on Profit and Loss Accounts. While a majority of respondents either strongly
agree or agree that credit management can reduce the Profit and Loss Accounts, a significant
number of respondents had a neutral response or disagreed with the statement. This suggests that
the impact of credit management on financial performance may vary depending on a number of
factors, including the specific strategies and practices implemented by an organization, the
industry in which it operates, and the broader economic context.
It is important for organizations to carefully evaluate the potential benefits and challenges of
credit management and to develop effective strategies for managing credit risk while also
37
minimizing negative impacts on financial performance. This may involve balancing the need to
reduce bad debts and improve cash flow with the need to maintain strong relationships with
customers and maintain profitability.
Table 12: It ensures the efficiency and effectiveness of the company
Agree 26 46
Neutral 4 7
Disagree 3 5
Total 56 100
Table 12 presents the responses to a statement regarding the potential impact of credit
management on the efficiency and effectiveness of a company. The data is presented in both
frequency and percentage format.
The table shows that out of the total number of respondents, 16 (29%) strongly agree that credit
management ensures the efficiency and effectiveness of the company, while 26 (46%) simply
agree with the statement. 4 (7%) respondents recorded a neutral response. 3 (5%) respondents
disagree with the statement, while 7 (13%) strongly disagree with it.
The data suggests that a majority of respondents agree that credit management can have a
positive impact on the efficiency and effectiveness of a company. This suggests that effective
credit management can help to improve overall business operations and increase profitability.
However, there are also some respondents who expressed a neutral or negative opinion on this
topic, highlighting the importance of carefully evaluating the potential benefits and challenges of
credit management for each individual organization. Factors such as industry, customer base, and
38
overall business strategy may all play a role in determining the best approach to credit
management for a particular company.
Overall, the data suggests that credit management is an important aspect of business operations
and can have a significant impact on overall financial performance. Organizations should
carefully consider the potential benefits and challenges of credit management and develop
effective strategies for managing credit risk while also maintaining strong relationships with
customers and ensuring overall business efficiency and effectiveness.
Table 13: Credit Portfolio Management helps in attracting new customers through word-of-
mouth advertising
Agree 30 54
Neutral 2 4
Disagree 3 5
Total 56 100
Table 13 indicates that Credit Portfolio Management (CPM) helps in attracting new customers
through word-of-mouth advertising. The table shows that 34% of respondents strongly agree and
54% agree that CPM helps in attracting new customers. Only 5% of respondents disagree with
this statement, and 4% are neutral or strongly disagree. The total number of respondents in the
survey is 56.
The results suggest that companies that effectively manage their credit portfolio are likely to
benefit from positive word-of-mouth advertising from satisfied customers, leading to increased
business opportunities. It highlights the importance of CPM as a key driver of customer
satisfaction and retention, which can ultimately contribute to the growth and success of an
organization.
39
Table 14: Credit Portfolio Management helps in Improving the reputation of the organization,
improving financial performance
Agree 21 38
Neutral 8 14
Disagree 4 7
Total 56 100
Table 14 shows the responses to the statement "Credit Portfolio Management helps in Improving
the reputation of the organization, improving financial performance".
Out of the 56 respondents, 32% strongly agree, 38% agree, 14% are neutral, 7% disagree, and
9% strongly disagree. The majority of respondents (70%) either strongly agree or agree that
credit portfolio management helps in improving the reputation of the organization and financial
performance.
This suggests that credit portfolio management is perceived to have a positive impact on the
financial performance and reputation of an organization. It could be due to the fact that effective
credit portfolio management reduces bad debt write-offs, improves cash flow, and strengthens
relationships with customers. This, in turn, can help to build a positive reputation for the
organization and improve its financial performance.
40
Objective 3: Credit Portfolio data quality and financial performance of financial institutions.
Table 15: Credit portfolio data quality ensures financial performance of financial institutions
Agree 19 34
Neutral 9 16
Disagree 3 5
Total 56 100
Looking at Table 15, we can see that there is a mixed response to the statement "Credit portfolio
data quality ensures financial performance of financial institutions". About 29% of the
respondents strongly agreed and 34% agreed with the statement, indicating that they believe that
credit portfolio data quality is important for financial performance. On the other hand, 16% were
neutral and 21% disagreed or strongly disagreed with the statement. This suggests that some
respondents may not see a direct correlation between credit portfolio data quality and financial
performance, or they may have concerns about other factors that also influence financial
performance. Overall, it appears that there is a general recognition among the respondents that
credit portfolio data quality plays a role in financial performance, but more nuanced analysis
may be needed to fully understand the attitudes and beliefs of the respondents.
41
Table 16: Risk management and regulatory compliance both are strongly impacted by the credit
portfolio data quality.
Agree 30 54
Neutral 2 4
Disagree 3 5
Total 56 100
Table 16 shows the respondents' perception of the impact of credit portfolio data quality on risk
management and regulatory compliance. The majority of respondents, 54%, agreed that credit
portfolio data quality has a strong impact on risk management and regulatory compliance, while
34% strongly agreed. Only 5% disagreed, and 4% were neutral. The high agreement and strong
agreement percentages suggest that credit portfolio data quality is considered an essential factor
in ensuring effective risk management and regulatory compliance.
Table 17: Credit Portfolio data quality helps in safeguarding the relationships of entities across
the organization, is essential for managing risks.

Agree 21 38
Neutral 8 14
Disagree 4 7
Total 56 100
42
The table shows that 32% of respondents strongly agree, 38% agree, 14% are neutral, 7%
disagree, and 9% strongly disagree with the statement that credit portfolio data quality helps in
safeguarding the relationships of entities across the organization and is essential for managing
risks. This suggests that most respondents believe that credit portfolio data quality has a positive
impact on managing risks and maintaining relationships within the organization.
Table 18: Credit Portfolio data quality ensures financial services directly impact customer
experience, interactions, and transactions, resulting in higher costs and lost revenue.
Agree 27 48
Neutral 0 0
Disagree 5 9
Total 56 100
It can be inferred from Table 18 that a majority of the respondents agree or strongly agree that
credit portfolio data quality ensures financial services directly impact customer experience,
interactions, and transactions, resulting in higher costs and lost revenue. Specifically, 82% of the
respondents agree or strongly agree, while only 18% of the respondents disagree or strongly
disagree. Credit portfolio data quality refers to the accuracy, completeness, and consistency of
the data used to manage a financial institution's credit portfolio. When credit portfolio data is of
high quality, it ensures that the institution has accurate information about its customers'
creditworthiness, which enables it to make informed decisions about lending and risk
management.
This, in turn, impacts customer experience, interactions, and transactions, as customers rely on
financial institutions to provide them with timely and accurate credit services. Poor credit
portfolio data quality can result in errors in credit decisions, delays in processing credit
43
applications, and inaccurate reporting of credit status. These issues can lead to increased costs for
the institution and lost revenue from dissatisfied customers who may switch to competitors.
Table 19: Credit Portfolio data quality ensures financial services use the same data in reporting,
analytics, and forecasting.
Agree 21 38
Neutral 8 14
Disagree 4 7
Total 56 100
Table 19 shows the responses of the survey participants to the statement "Credit Portfolio data
quality ensures financial services use the same data in reporting, analytics, and forecasting." The
results indicate that: 32% of respondents strongly agree with the statement, 46% of respondents
agree with the statement, 14% of respondents are neutral, 5% of respondents disagree with the
statement and 3% of respondents strongly disagree with the statement.
Overall, the majority of respondents (78%) either strongly agree or agree that credit portfolio
data quality is essential for ensuring consistency in reporting, analytics, and forecasting across
financial services. This consistency is crucial for ensuring accuracy and reliability in decision-
making, which can ultimately impact the financial performance of the organization. The
relatively low percentage of respondents who are neutral or disagree with the statement suggests
that there is a consensus among financial professionals that credit portfolio data quality plays a
critical role in these areas.
Table 20: Credit Portfolio data quality ensures accuracy of this data is critical for data-driven
business decisions, and identifying anomaly values earlier in the data ingestion process
significantly reduces downstream complexity

44
Agree 30 54
Neutral 2 4
Disagree 3 5
Total 56 100
Table 20 shows that the majority of respondents (88%) either strongly agree or agree that credit
portfolio data quality ensures the accuracy of the data, which is critical for data-driven business
decisions. Additionally, almost all respondents (98%) either strongly agree, agree or are neutral
on the statement that identifying anomaly values earlier in the data ingestion process
significantly reduces downstream complexity. This suggests that organizations place a high value
on data accuracy and timely anomaly detection.
Table 21: Credit Portfolio data quality helps to achieve a comparative edge if there is higher
quality data than their competitors.
Agree 22 39
Neutral 2 4
Disagree 8 14
Total 56 100
Table 21 indicates that 38% of the respondents strongly agree and 39% agree that Credit
Portfolio data quality helps to achieve a comparative edge if there is higher quality data than
45
their competitors. Only 14% disagree, and 5% strongly disagree with this statement, while 4%
are neutral. This suggests that most respondents believe that having high-quality credit portfolio
data can give their organization a competitive advantage over their competitors.
Credit Portfolio Management
Regular monitoring helps to Improve risk management
Agree 22 39
Neutral 2 4
Disagree 6 11
Total 56 100
It helps to increase returns
Agree 30 54
Neutral 2 4
Disagree 6 11
Total 56 100
46
Better decision making by informing decision-making and investment strategies.
Agree 21 38
Neutral 8 14
Disagree 4 7
Total 56 100
Credit portfolio management can also help financial institutions comply with various regulations
related to credit risk management.
Agree 27 48
Neutral 0 0
Disagree 5 9
Total 56 100
Monitoring and managing the credit risk of a portfolio helps to improve liquidity.
Agree 19 34
47
Neutral 9 16
Disagree 3 5
Total 56 100
A financial institution can protect its reputation and maintain the trust of its customers
Agree 30 54
Neutral 2 4
Disagree 6 11
Total 56 100
Increased efficiency
Agree 30 54
Neutral 2 4
Disagree 6 11
Total 56 100
48
understanding the credit risk of its customers helps to better customer service
Agree 21 38
Neutral 8 14
Disagree 4 7
Total 56 100
49
References
Ali, S. A (2015). The Effect of Credit Risk Management on Financial Performance of The
Jordanian Commercial Banks. Analysis and Reporting; The Journal of Educational Research,
Vol. 96(1)
Amin, M. (2015). Social Science Research: Conception, Methodology and Analysis. Kampala:
Makerere University Printery
Antonio, S. (2019). Understanding Client Exit: A Survey of Bangladesh and Pakistan, Focus
Notes No. 16
Bank of Uganda. (2019). Annual Report on Micro Finance, 1999/2019, Kampala: Bank of
Uganda.
Bank of Uganda. (2013). Annual Report on Micro Finance, 2012/2013, Kampala: Bank of
Uganda.
Boateng, O. ( 2019). Optimal Credit portfolio management (a case study of cal bank, nhyieaso
branch - KUMASI).
Bohnstedt, A. (2019). (Ed). Recent Developments in Uganda‟s Finance Sector: Crisis of 60

Transition? FSD Series No.3, Kampala: Bank of Uganda
Chodechai, S. (2018). Determinants of Bank Lending in Thailand. Thailand: An Empirical

Examination for the years 1992 – 1996.
50
Dennizer, C. (September, 1997). The Effects of Financial Liberalization and Bank Entry on
Competition, Washington: World Bank
Ditcher, T., &Kamuntu, E. (1997). UNDP Micro Finance Assessment Report, Kampala: UNDP
Abafita, J (2013), Microfinance and Credit Repayment Performance: A Case Study of the
Uremia Credit and Savings Share Company (CSSCo), Addis Ababa, Ethiopia
Bruett, T (2018), Four Risks that must be managed by MFIs: Recommendations for Profitable
Growth, Microfinance Experience Series No. 2, Alternative Credit Technologies, USA
CGAP (2017), Delinquency Measurement and Control, and Interest Rate Calculation and Setting
for MFIs, Participant Course Material, Washington D.C USA
Kinde, B.A (2012), Financial Sustainability of Microfinance Institutions (MFIs) in Ethiopia,

European Journal of Business and Management, Vol.4, No.15, Dire Dawa, Ethiopia
Heikkilä, a (2019), The Role of Tacit Knowledge in Borrower Screening and Monitoring:
Evidence from a Natural Experiment, Aalto University School of Economics, Albania
Mulema, S.P (2019), Credit Policy and Credit Portfolio Performance in Microfinance
Institutions, MakerereUniversity, Kampala, Uganda
51
APPENDIX I: QUESTIONNAIRE
My name is ……………………………………... I am a student at Nkumba University

undertaking a BBA Course. I am conducting a research study on the Credit Portfolio
Management and Financial Performance of Microfinance Institutions: A Case Study of Windsor
Micro Finance Institution Entebbe (WMFI). As one of the employees in this organization you are
of great help in this research. I would be grateful if you could spare few minutes to fill this
questionnaire to help me accomplish my study.
Demographic Information
Gender Education Level
Male Degree
Female Undergraduate
Age Post Graduate
Below 35 Diploma
36-55 UACE
Above 55 UCE
Work Experience
Less than 3 years
More than three years Work Category
Credit Officer
Client
Finance officer
Administrator
52
Objective 1: Credit portfolio data availability and financial performance
SN Statement SD D N A SA
1 Portfolio data availability increases profitability of the

organization.
2 Portfolio performance history ensures increased sales margin
3 Portfolio data quality promotes return on investment
4 credit portfolio data availability ensures risk Identification
5 A good credit data gives you leverage to negotiate a lower

interest rate
6 Good credit data helps to save money which can be used on

insurance
7 It can be used as bargaining power for Credit interests.
8 It helps in evaluation of individual Credit which depends on

the availability of portfolio data
Any other, please note
down…………………………………………………………………………………………………
Objective 2: Credit Portfolio Management history and Financial Performance
1 A firm to ensure that they maintain an optimal level of credit
2 credit management will lower the capital that is locked with

the debtors,
3 reduces the possibility of getting into bad debts
4 It visibly reduces the Profit and Loss Accounts
53
5 It ensures the efficiency and effectiveness of the company
6 It helps in attracting new customers through word-of-mouth

advertising
7 It helps in Improving the reputation of the organization,

improving financial performance
Any other please note here; …………………………………………...……………………………
………………………………………………………………………………………………………...
Objective 3: Credit Portfolio data quality and financial performance of financial institutions.
1 Credit portfolio data quality ensures financial performance of

financial institutions
2 Risk management and regulatory compliance both are

strongly impacted by the credit portfolio data quality.
3 safeguarding the relationships of entities across the

organization, is essential for managing risks.
4 financial services directly impact customer experience,

interactions, and transactions, resulting in higher costs and
lost revenue.
5 financial services use the same data in reporting, analytics,

and forecasting.
6 Accuracy of this data is critical for data-driven business

decisions, and identifying anomaly values earlier in the data
ingestion process significantly reduces downstream
complexity
54
7 It helps to achieve a comparative edge if there is higher
quality data than their competitors
In case of any other, please note here; ……………………………………………………………….
……………………………………………………………………………………………………….
55
SECTION E: CREDIT PORTFOLIO MANAGEMENT
1 Regular monitoring helps to Improve risk management
2 It helps to increase returns
3 Better decision making by informing decision-making and

investment strategies.
4 Credit portfolio management can also help financial

institutions comply with various regulations related to credit
risk management.
5 Monitoring and managing the credit risk of a portfolio helps

to improve liquidity.
6 A financial institution can protect its reputation and maintain

the trust of its customers
7 Increased efficiency
8 understanding the credit risk of its customers helps to better

customer service
THANKS FOR YOUR PARTICIPATION
END
56
APPENDIX II: INTERVIEW GUIDE
Credit portfolio data availability and financial performance
Can Portfolio data availability increase profitability of the organization.
Can Portfolio performance history ensure increased sales margin
Does Portfolio data quality promote return on investment
Does credit portfolio data availability ensure risk Identification
Can a good credit data give you leverage to negotiate a lower interest rate
Does good credit data help to save money which can be used on insurance
Credit Portfolio Management history and Financial Performance
Does it ensure that they maintain an optimal level of credit
Does credit management lower the capital that is locked with the debtors,
Does it reduce the possibility of getting into bad debts
Does It visibly reduce the Profit and Loss Accounts
Does It ensure the efficiency and effectiveness of the company
Does It help in attracting new customers through word-of-mouth advertising
Credit Portfolio data quality and financial performance of financial institutions.
Does Credit portfolio data quality ensure financial performance of financial institutions
Does Risk management and regulatory compliance both are strongly impacted by the credit
portfolio data quality.
Does it safeguarding the relationships of entities across the organization, is essential for
managing risks?
57
Does financial services directly impact customer experience, interactions, and transactions,
resulting in higher costs and lost revenue.
Does financial services use the same data in reporting, analytics, and forecasting.
58
4. Credit Portfolio Management
Does regular monitoring help to Improve risk management?
Credit Portfolio Management It helps to increase returns
Credit Portfolio Management helps in better decision making by informing decision-making and
investment strategies.
Does credit portfolio management can also help financial institutions comply with various
regulations related to credit risk management.
Does monitoring and managing the credit risk of a portfolio helps to improve liquidity.
A financial institution can protect its reputation and maintain the trust of its customers
Understanding the credit risk of its customers helps to better customer service
59
Appendix III: Sample Size Determination Table
60

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CREDIT PORTFOLIO MANAGEMENT AND FINANCIAL PERFORMANCE OF

MICROFINANCE INSTITUTIONS: A CASE STUDY OF Windsor

MICRO FINANCE INSTITUTION ENTEBBE (WMFI)

A RESEARCH PROPOSAL SUBMITTED TO THE SCHOOL OF BUSINESS ADMINISTRATION IN

A BACHELORS DEGREE OF BUSINESS ADMINISTRATION

LIST OF FIGURES vii

LIST OF TABLES viii

CHAPTER ONE: INTRODUCTION1

1.1 Background of the Study 1

1.2 Statement of the Problem 4

1.3 Specific Objectives 5

1.4 Research Questions 5

1.6 Scope of the study6

1.6.1 Time scope 6

1.6.2 Content Scope 6

1.6.3 Geographical Scope 6

1.7 Significance of the study 6

1.8 Justification of the study 7

2.1 Literature Survey 8

2.2. Theoretical Review 9

2.5 Financial Performance 18

2.6 Conceptual Framework 19

3.2 Research Design 20

3.3 Research approach 20

3.4 Research Classification 21

3.5 The research duration. 21

3.6 Target Population 21

3.7 Sampling design and sample size 21

3.8 Data Collection 22

3.11 Data Analysis 23

3.11 Ethical Consideration 23

APPENDIX II: INTERVIEW GUIDE 30

Appendix III: Sample Size Determination Table 31

Figure 2. 1: Conceptual Framework 25

Table 3.1: Sample Size Determination 28

1.1 Background of the Study

1.1.1 Historical Perspective

Windsor Employees Co-operative Savings and Credit Society is a democratic financial

1.1.2 Theoretical Perspective

1.1.3 Conceptual Perspective

1.1.4 Contextual Perspective

1.2 Statement of the Problem

1.3 Specific Objectives

1.4 Research Questions

1.5 Research Hypothesis

The study will test whether there is:

1.6 Scope of the study

The study scope will be divided into three categories;

1.6.1 Time scope

1.6.2 Content Scope

1.6.3 Geographical Scope

1.7 Significance of the study

1.8 Justification of the study

2.1 Literature Survey

Information Asymmetry Theory:

Auronen (2003) According to this investigation Information asymmetry alludes to a

2.3 Credit Portfolio Management history and Financial Performance

Sindani (2012) in her study on Effectiveness of Credit Management System on Credit

Wangechi (2012) in her study on Factors influencing sustainability of microfinance institutions

Enhanced data quality contributes to increased decision-making in a financial institution. The

2.5 Financial Performance

Independent variable Dependent variable

Credit portfolio management Financial Performance