Determining the Causes and Impact of Non Performing Loans on the Operations of Microfinance Institutions : A Case of Sinapi Aba Trust.
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Date
2012
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Abstract
Microfinance Institutions (MFIs) in Ghana currently provide significant financial services including microcredit facilities particularly to the rural and semi-urban areas across the country. Granting of microcredit facility(Loan) is a major activity of the MFIs and the loan portfolio constitute a significant proportion of the assets of the MFIs. Undoubtedly, the MFIs derive most of their interest incomes from loans, however, not all loans granted to beneficiaries perform well and earn the expected returns and this tend to have adverse effect on the quality of the loan portfolio. In the light of key role that the MFIs have assumed in the national economy, the study was conducted to establish the causes, trend and impact of NPLs on the operations of MFIs with particular focus on Sinapi Aba Trust(SAT). The study specifically focused on the impact of NPLs on operating profits, interest incomes and loanable funds of SAT. In terms of data, primary and secondary data were used for the study. The study found out that SAT recorded substantial amounts as non performing loans in the five-year period reviewed and this adversely affected the financial performance of the organization by way of reducing its operating profits, loanable funds and undermining the liquidity position among others. Business failure, lack of monitoring of loans, inadequate marketing avenues were identified as the principal causes of the non performing loans in the organization. The study also found that trade and service sectors have the highest incidence of NPLs. In order to address the menace of NPLs in the MFIs, the following measures are recommended to the management of (SAT). These measures include effective monitoring of loans, credit training programs, tight security requirements and seeking the services of credit reference bureaus and private debt collectors.
Description
A Thesis submitted to the Institute of Distance Learning, Kwame
Nkrumah University of Science and Technology, Kumasi in partial fulfillment of
the requirements for the degree of
Commonwealth Executive Masters of Business Administration,