Department of Management
URI for this collectionhttps://rps.wku.edu.et/handle/123456789/45800
Department of Management
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Item CAUSES AND IMPACTS OF NON PERFORMING LOANS ON THE OPERATIONS OF MICRO FINANCE INSTITUTIONS: A CASE OF SPECIALIZED FINANCIAL AND PROMOTIONAL INSTITUTION(WOLKITE UNIVERSITY, 2020-07) ABERA ABOMSA GUTAThe study was conducted to examine both the Causes and impacts of nonperforming loans on the operations of MFIs particularly focusing on Specialized Financial and Promotional Institution. Loan portfolio is the major assets of any financial institution to sustain in the industry, but once some portion of this asset is unexpectedly stop producing interest incomes, the quality of loan portfolio also negatively affected. This research study adopted descriptive and explanatory research design on the causes of nonperforming loans of Specialized Financialand Promotional Institution, and data has been collected mainly through primary source using questionnaire from SFPI staffs. A case study approach was also used to collect secondary data by reviewing the annual reports and income statement to identify the extents of NPLs impacts on the operation activities of SFPI. So, 65 staffs were taken as samples based on stratified random sampling method of sample selection by using mathematical formula. For data analysis, descriptive statistics including mean, frequency, percentages, graph, pie chart and simple excel were used. Regression analysis used through SPSS software version 20. This research study found out the major causes of NPLs which significantly affecting the portfolio quality of the institution. Therefore, At 5% level of significance and 95% level of confidence, inadequate monitoring and follow up, wrong timing of credit delivery, inefficient management information system, ineffective credit approval, and credit appraisal variables were causing nonperforming loans ofSFPI. The study also found out that nonperforming loans contribute mostly to interest incomes that generated from the total loan portfolio was eaten for the provision of bad dept in five years analysis. Also the study indicates a net operating profit of the institution was eroded due to provisioning payments for nonperforming loans (bad debts) and available funds for loans are significantly declined as nonperforming loans increase. Further study revealed that agricultural loan sector, petty trade loan sector and WEDP loan sector has the highest share of NPLs and followed by others sectors such as, micro energy loan sector, individual loan sector and service sector. To mitigate the problems of nonperforming loans some strategic issues and mechanisms were recommended to the management of SFPI. These measures are appropriate credit approval, adequate monitoring and follow up before and after loans granted to the customers, Continuous branch supervision to ensure timely credit delivery, credit diversification strategies, implement effective and efficient Management information systems and mechanisms to control the health of loan portfolio.