Analysis of non-performing loans: A case study of Dunkwa area Teachers Co-Operative Credit Union (DATCCU)

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JULY, 2015
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Microfinance Institutions (MFIs) have been in Ghana for a long time but their effort in the growth of the economy has been greatly recognized recently. MFI’s provide financial services to the less privileged, especially in rural areas that find it difficult to access financial services from the universal banks. Loans granting is a major activity of MFI’s and it constitutes a major source of revenue to MFI’s if well managed but if not well managed, can even lead to the collapse of the said institution; the reason loans are termed double-edged sword. Unfortunately, not all loans granted to clients earn the expected returns, and when this happens, can have a negative effect on the institution in question. Given the role played by MFI’s in economic development, it is imperative to delve into the causes of NON-performing loans so as to put in place both proactive and direct measures to help reduce this menace. Moreover, since MFI’s cannot stop giving loans, the study sought to find out the effects of NPL’s on the performance of MFI’s; specifically on operating profits and interest income so as to make recommendations to avoid future occurrences. The research work focuses on the activities of DATTCU in the last four years, thus 2011-2014. Data wise, both primary and secondary data were used for the study. It was found out from the study that in the four year period, DATTCU had substantial amount of its loans going waste as a result of Non-Performing loans. This affected the performance of DATTCU by reducing operating profits and interest incomes. It was further revealed that a low rate of education has negative effect on the rate of NPL’s. Business failure was adjudged to be the major cause of non-performing loans, though other causes ineffective monitoring, poor loan appraisal, crop failure among others were also identified as causes of non-performing loans. It was further found out from the study that Business and agricultural sectors had chunk of the non-performing loans recorded by DATTCU. To help solve the problem of NPL’s some measures were recommended to the management of DATTCU. Amongst the recommendations are: Incorporation of entrepreneurial courses in the curriculum of schools, Training programmes, effective programs and improvement in credit appraisal.
A Thesis submitted to the Department of Accounting and Finance, Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirements for the degree of Master of Business Administration (Finance Option)