Liquidity management and performance of microfinance institutions: case of Masaka Microfinance and Development Cooperative Trust Limited (MAMIDECOT)

Abstract

This study analyzed the effect of liquidity management on the financial performance of Micro Finance Institutions at Masaka Micro Finance and Development Cooperative Trust Limited in Uganda. The objectives of the study were to examine the different liquidity management practices and policies on the performance of Micro Finance Institutions in Uganda, to identify the impact of the different liquidity management practices on the performance of Micro Finance Institutions in Uganda and to examine the effect of liquidity management structure of the institution on its performance. Purposive sampling was used to select the sample and the data was captured by use of self- administered questionnaires which provided sufficient data from the sample selected. Data was analyzed quantitatively using the Statistical Package for Social Sciences (SPSS). The study targeted 21 respondents and the research findings from analysis show that the different liquidity management practices are used at MAMIDECOT and were positively influencing its performance which therefore implies that if the different liquidity management practices are used by microfinance institutions, it would improve on their financial performance, the different variables of the liquidity management structure at MAMIDECOT effect its performance therefore implying that a strong, solid and sound liquidity management structure of the microfinance institution positively affects its performance, liquidity management at MAMIDECOT has an effect on its financial performance which therefore implies that enhanced liquidity management would lead to a raise in the financial performance of the Micro Finance institutions. The study recommends that MAMIDECOT needs to invest the excess of liquidity available at the MFI in various aspects of investments in order to increase the MFIs‟ performance and to get benefits from the time value of the available money. The impact of liquidity risk management practices adopted by microfinance institutions to improve their profitability should be an area for further research in future since it will be interesting to compare the various liquidity risk management models used in the microfinance sector in order to maintain optimal liquidity levels for the institution.