Analysis of Loan Portfolio Management for Financial Profitability and Sustainability of Umwalimu SACCO in Rwanda

Abstract

The analysis of loan portfolio management for financial profitability and sustainability of MFIs in Rwanda, Teachers saving and Credit (UMWALIMU SACCO) has been taken as a pilot in this paper which covered the period of 2010-2014. This paper with aim of answering problem statement of “how does loan portfolio management contribute to MFI’s financial profitability and sustainability” employed the methods of data collection and analysis. Both primary and secondary data were collected then analyzed through MFI Factsheet 3_4, SPSS 16 tools (Pearson correlation, and multi regression analysis), so that the correlation and strength between variables can be determined. The analysis found the p value significance between amount disbursed, gross loan, PAR (loan management indicator) and interest rate, loan duration (credit policy indicator), with expected sign,  and between  cost ratio, net margin and operating margin, profitability indicators, and PAR and loan loss reserve ratio, the loan management indicators, some of them with contrary expected sign, The total asset towards sustainability variables (ROE, ROA, ROE excluding donations, ROA excluding donations), some of them has contrary expected sign after the consideration of the lowest p= 0.009 and the highest significance level of p=0.032 all of them <0.05, three hypothesizes  were confirmed and concluded that credit decisions are strongly influenced by credit policies. Therefore, credit policies can have significant impact on the success of an institution. For example, if a credit policy is too risk averse it will hamper credit provision to marginal but potential creditworthy borrowers resulting in or contributing the institution failing to achieve its revenue goals.