Loan default rate and financial performance of savings and credit institutions in Uganda, A case study of Kyabugimbi development SACCO Bushenyi district

Abstract

The main objective for this study was to determine the major factors contributing to an increase in the loan default rate in Bushenyi and Wakiso district. The researcher adopted a cross - sectional study design of quantitative approach where data was collected from respondents, coded analyzed and findings presented in the same time period. Analysis was done in 3 that was univariate, bivariate and regression analysis, al which allowed the researcher better understand the factors enough to make conclusions. From the univariate analysis shows the mean amount of loans advanced to the members was Ush 467,151, 000. Over the six years study period while the mean of the loans defaulted was over the same period was Ushs 7,566,000. The default rate on average was 2.5% of the total loans advanced over the study period with the highest default rate occurring between the year 2016 and 2017 at 2.9% and 31. % respectively. Also indicates that 50% of loans offered by the SACCO were used to start and boost businesses, 37.5% were borrowed for undertaking agriculture, and 10% were meant for housing while 2.5% constituted loans obtained for service purpose. This indicates that most borrowers who obtained credit used it for business purposes. From table 4.6, 10% constituted of salary loans, 57.5% were business loans, and 25% were school fees loans whereas 22.5% composed of other categories of loans. This implies that majority of the loans were business loans as members acquired them to start-up small-scale businesses and other income generating projects. Table 4.10 shows that 7.5% of the respondents strongly disagreed, 17.5% disagreed, none was not sure, 40% agreed and only 35% strongly agreed. This means that the SACCO first gives short-term loans to test the credit worthiness of the clients depicted by general agreement at 30(75%). Findings indicated the need for the SACCOS to reduce default and further studies can be made on the relationship between default and interest rate sectors to which loan are offered. These would help researchers better understand the relationship and provide evidence based solutions to the challenges of loan default.