Effect of credit risk management on financial performance of deposit taking savings and credit cooperatives in Uganda: a case study of Uganda Central Co-operative Financial Services Ltd

Abstract

This study aimed at examining the Effects of Credit risk management policies and how they affect the financial performance of Saving and Credit Cooperative Organizations (SACCOs), in Uganda. This study intended to analyse the level of Credit risk Management practices of SACCOs, analyse the level of financial performance of SACCOs in Uganda, especially at UCCFS and finally to establish the relationship between credit risk management and the financial performance of UCCFS and Inference made at SACCOs in Uganda. The researcher used purposive and non-probability sampling techniques. Therefore, the sample size was 52 respondents out of 52 population including 13 SACCOs managers and 39 chairpersons of different committees. In this research data were collected using questionnaires and interviews. This study employed the use of Chi-Square test method to establish the nature of relationship between variables. Furthermore, the study is significant to the management of UCCFS in putting into place Credit risk management practices that will improve the Financial Performance of their SACCOs. Descriptive survey design, qualitative and quantitative research design were used. Data collected were analyzed with the aid of the Statistical Package for Social Sciences for descriptive statistics, (SPSS version26). The study found that most of the respondents had an experience of between 3 -5 years, indicating that the majority of them are mature and with considerable experience to understand, the effects of credit risk management on the financial performance of the SACCOs. In terms of gender, it is evident that the SACCOs was managed by men even though there is no great discrepancy with the number of women. In addition, most of the staff are graduates with either a bachelor’s degree or a diploma. However, Most of the SACCOs are managed by degree holders as their highest level of education. The findings also revealed that there was a significant relationship between credit risk management practices and financial performance of SACCOs in Uganda, since p-value was 0.000 (P-value) which was less than 0.05 (P-alpha) and lastly the findings of this study revealed that there was a significant level of Credit Risk management practices and financial performance of SACCOs in Uganda respectively. The study indicated that a credit risk management framework significantly influenced the financial performance of deposit-taking SACCOs when the one factor of credit risk management was considered. On the other hand, when these variables were applied, it is evident that credit monitoring significantly influenced the financial performance of SACCOs. It was evident that if the credit risk management framework was sound then, the financial performance would be satisfactory. SACCOs should establish appropriate credit appraisal methods to offer guidance in the issuance of credit. Proper customer creditworthiness systems should be put in place on the basis of their capacity to repay their credit and customer loyalty. SACCOs should establish sound credit risk appraisal practices that are central to the mitigation of credit risk