SOUND MANAGEMENT AND PERFORMANCE OF MICROFINANCE INSTITUTIONS

SOUND MANAGEMENT AND PERFORMANCE OF MICROFINANCE
INSTITUTIONS

A CASE STUDY OF PRIDE MICRO FINANCE LTD

NASWALI INNOCENT
09/U/2503/AFD/PD

RESEARCH REPORT SUBMITTED TO THE SCHOOL OF
MANAGEMENT & ENTREPRENEURSHIP IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE AWARD OF A BACHELOR OF
SCIENCE DEGREE IN ACCOUNTING AND FINANCE OF KYAMBOGO
UNIVERSITY

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SEPTEMBER 2012

DECLARATION

I NASWALI INNOCENT, declare that this research report is my original work and has never
been submitted to any university or college for any award.

Signed

..........................................................

NASWALI INNOCENT,

Date..................................................

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APPROVAL

This is to approve that this research report about “SOUND MANAGEMENT AND
PERFORMANCE OF MICROFINANCE INSTITUTIONS” has been carried out under my
supervision and is now ready to be submitted in to the Kyambogo University academic
committee for marking.

Signed

…………………………………….. dated……………………….

MR. WALAKIRA HUSSEIN

Lecturer School of Management & Entrepreneurship

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DEDICATION

I dedicate this report to my dear friends

I will always remember the kindness and support you offered to me.

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ACKNOWLEDGEMENT

I owe my deepest and most abiding gratitude to my LORD GOD who has guided me through the
entire process while compiling this report.

Special thanks

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TABLE OF CONTENTS
DECLARATION.............................................................................................................................ii
APPROVAL...................................................................................................................................iii
DEDICATION................................................................................................................................iv
ACKNOWLEDGEMENT...............................................................................................................v
TABLE OF CONTENTS................................................................................................................vi
LIST OF TABLES..........................................................................................................................ix
ABSTRACT.....................................................................................................................................x
LIST OF ACRONYMS AND ABBREVIATIONS.......................................................................xi
INTRODUCTION.......................................................................................................................1
1.0 Introduction;.......................................................................................................................1
1.1 Background of the study....................................................................................................1
1.2 Statement of the problem...................................................................................................3
Commercial banks traditionally lend to medium and large enterprises which are judged
to be creditworthy, avoid doing business with the poor and their micro enterprises because the
associated cost and risks are considered to be relatively high. Microfinance institutions
(MFIs) have therefore become the main source of funding micro enterprises in Africa
and in other developing regions. Anyanwu (2004)....................................................................3
1.3 The purpose of the study....................................................................................................3
1.4 Objectives of the study.......................................................................................................3
1.5 Research questions.............................................................................................................3
1.5.0 Scope of the study...........................................................................................................4
1.5.1 Content scope;.................................................................................................................4
1.5.2 Functional scope;............................................................................................................4
1.5.3 Geographic scope;...........................................................................................................4
1.5.4 Periodic scope;................................................................................................................4
1.6 Significance of the study..................................................................................................5
1.7 Definition of the terms;..........................................................................................................6
CHAPTER TWO.............................................................................................................................7
REVIEW OF RELATED LITERATURE...................................................................................7
2.0Introduction.........................................................................................................................7
2.1 The concept of microfinance institutions;..........................................................................7
2.2.1 Human Resource and Management ...............................................................................9

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2.2.2 Regulation and Supervision of Micro Finance Institutions............................................9
2.2.3 The management style of the microfinance institutions.................................................9
2.2.4 Coordination in the Microfinance industry for sound management.............................11
2.3.0 Examining the impact of sound management on performance.....................................11
2.4.0 Establishing the other factors for the performance of the microfinance institutions....13
The banking sector in Uganda is not very well developed so the lack of access to banking
institutions and this has adversely affected the performance of many institutions. By the mere
fact that financial institutions mostly in rural areas are not well developed acts as an obstacle as
the microfinance institutions end up only limited to the clients that are located in the urban
centers while ignoring those in the rural areas and leaving them to keep their money under their
pillows and remaining ignorant about the securities and shares availed by the microfinance
institutions to increase on their capital base..................................................................................15
2.5 Microfinance products and services that enable microfinance institutions to perform...15
2.6.0 Ways of improving the performance of microfinance institutions...............................17
2.7 Conclusion.......................................................................................................................19
CHAPTER THREE:......................................................................................................................20
METHODOLOGY....................................................................................................................20
3.0 Introduction......................................................................................................................20
3.1 Research design...............................................................................................................20
3.2 Population of study..........................................................................................................20
3.3 Sample size and sampling techniques..............................................................................20
3.3.1 Sample size...................................................................................................................20
3.3.2 Sampling Technique.....................................................................................................21
3.3 Instruments of data collection..........................................................................................21
3.3.1 Interview Guide............................................................................................................21
3.3.2 Questionnaires...............................................................................................................21
3.3.3 Observation schedule....................................................................................................22
3.3.4 Documentary study and desk research methods;..........................................................22
3.4 Data Analysis and presentation;.......................................................................................22
3.5 variables of the study;......................................................................................................22
3.6 Validation of tools............................................................................................................22
3.7 Data collection process....................................................................................................23
3.8 Analysis methods.............................................................................................................23
3.9 Limitations.......................................................................................................................23
CHAPTER FOUR..........................................................................................................................25
DATA ANALYSIS, PRESENTATION AND INTERPRETATION OF THE FINDINGS.....25

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4.0 Introduction;.....................................................................................................................25
4.1.0 Presentation of findings about the background information of the respondents;.........25
4.2 Investigating the management styles used by microfinance institutions.........................28
4.3.0 Examine the impact of sound management on performance of microfinance
institutions..............................................................................................................................31
4.4.0 Establishing the other factors for the performance of the microfinance institutions....33
4.5.0 How the performance of the microfinance institutions can be improved through sound
management...........................................................................................................................36
CHAPTER FIVE...........................................................................................................................39
SUMMARY OF FINDINGS, DISCUSSIONS AND CONCLUSION.....................................39
5.0 Introduction......................................................................................................................39
5.1Summary of the study findings;........................................................................................39
5.2 Discussion of the findings of the study;...........................................................................40
5.3Conclusions from the study;.............................................................................................41
5.4Recommendations from the study....................................................................................41
5.5Suggested areas for further research,................................................................................42
References......................................................................................................................................43
Appendix 1.....................................................................................................................................45
RESEARCH QUESTIONNAIRE.........................................................................................45
SECTION B...........................................................................................................................46
2.0Investigating the management styles used by microfinance institutions..........................46
4.4 do you think the performance of the Microfinance institutions can be improved?.........49
APPENDIX 2.............................................................................................................................50
TIME SCHDULE..................................................................................................................50
APPENDIX 3.............................................................................................................................52
BUDGET ESTIMATE...........................................................................................................52
Appendix 4.................................................................................................................................53
Research letter........................................................................................................................53

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LIST OF TABLES
4.1.1 Table 1: Showing the gender of the respondents..................................................................25
4.1.2 Table 2: Findings about the age bracket of the respondents.................................................26
4.1.3 Table 3: Findings about the distribution of departments of the respondents .......................27
4.1.4 Table 4: findings about the duration taken by the employees in the company.....................27
4.2.1 Table 5: Showing the management styles applied in Pride microfinance ltd (MDI)............29
4.2.2 Table 6: Showing whether the management styles applied are effective in the organization.
........................................................................................................................................................29
4.2.3 Table 7: Showing what the respondents think of the microfinance’s management style.....30
4.2.4 Table 8: Showing personnel with responsibility of ensuring sound management in the
company.........................................................................................................................................31
4.3.1 Table 9: Whether the management style has an impact on the performance of the
microfinance institution.................................................................................................................32
4.3.2 Table 10: How sound management affects the performance of microfinance institutions...32
4.3.4 Table 12: Whether the management of the institution has authority to implement vital
changes...........................................................................................................................................33
4.4.1 Table 13: Which of the following factors affect the performance of microfinance
institutions......................................................................................................................................33
4.4.2 Table 14: How these factors have affected the performance of microfinance institution....34
4.4.3 Table 15: Do you think these factors play the pivotal role on performance of microfinance
institutions or it’s the management style of the institution that plays the pivotal role?.................35
4.5.1 Table 16: whether the performance of the microfinance institutions can be improved......36
4.5.2 Table 17: Showing what should be done about management so as to improve performance
of the microfinance institutions.....................................................................................................37
4.5.3 Table 18: Findings about what should be done to ensure sound management in the
microfinance institutions................................................................................................................37
4.2 How do these factors affect the performance of microfinance institutions?...........................48
4.3 Do you think these factors play the pivotal role on performance of microfinance institutions
or it’s the management style of the institution that plays the pivotal role?...................................49
4.5 What should be done about management so as to improve performance of the microfinance
institutions?....................................................................................................................................49
4.6 What should be done to ensure sound management in the microfinance institutions?..........49

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ABSTRACT
This study was about investigating of the impact of sound management on the performance of
the microfinance institutions with a case study of pride microfinance ltd (MDI) and in doing this;
the researcher was guided by the objectives such investigating the management styles used by
microfinance institutions, examining the impact of sound management on performance and
establishing the other factors for the performance of the microfinance institutions.

The study was both descriptive and analytical in nature and it involved the observation of the
employees and also issuing of questionnaires that were answered by the respondents and later on
returned to the researcher for analysis and presentation of the findings which were tabulated and
presented in percentages.

The researcher found out that sound management is a product of factors such as the management
style of the company and these styles included autocratic style, value leverage, democratic,
persuasive and consultative and all these have away they impact on the performance of the
institutions such as timely preparation of the financial statements, quick and timely decision
making. And other factors such as the level of competition in the industry and he regulatory
framework of the institution.

In conclusion therefore, the research found out that sound management is the pillar to the
performance of the company and this works in consultation with other factors such as the spread
out of the company, the level of technology and the competition level in the sector yet the
regulatory framework of the central bank over the microfinance institutions to cater for their
performance.

The researcher therefore recommended that the microfinance institutions should adhere to the
guidelines of the corporate governance provided by the central bank and ensure formulation of a
human resources committee for the implementation of the management policies, improvement in
the level of technology so as to serve more clients and to increase profitability.

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LIST OF ACRONYMS AND ABBREVIATIONS

MFI : Microfinance Institutions

AMFIU : Association of Micro enterprise Finance Institutions of Uganda.

BOU : Bank of Uganda

CMF : Centre for Micro Enterprise Finance.

DFID : Department for International Development.

ECS : Entandikwa Credit Scheme

GOU : Government of Uganda.

IFAD : International Fund for Agriculture Development

MCC : Micro Finance Competence Centre.

MDIs : Micro Deposit-taking Institutions

MFIs : Micro Finance Institutions.

MFPED : Ministry of Finance, Planning and Economic Development

MGLSD : Ministry of Gender, Labour and Social Development

NGOs : Non GovernmentOrganisations

PEAP : Poverty Eradication Action Plan

PMA : Plan for the Modernisation of Agriculture

SME : Small and Medium Sized Enterprise

UCA : Uganda Cooperative Alliance.

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UCAP : Uganda Micro Finance Capacity-Building Framework

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CHAPTER ONE:

INTRODUCTION

1.0 Introduction;

This chapter consists of the background of the study, problem statement, the purpose of the
study, research objectives and, questions, significance and the definition of the major terms that
were used in the study

1.1 Background of the study
The term microfinance is often used interchangeably with microcredit and connotes a financial
venture with interest in rendering services to the poor although with profit-making in view.
According to Elahi and Danopoulos, (2004) microfinance is defined as “the attempt to improve
access to small deposits and small loans for poor households neglected by the banks.” This
mainly applies to the commercial banks.

Uganda’s financial system is characterized by the co-existence of formal and informal financial
markets. The formal financial markets, which mainly comprise of commercial banks,
development banks and credit institutions mainly exist in urban areas and offer a narrow range of
financial services. They concentrate on providing working capital mainly to medium and large-
scale enterprises. Furthermore, the formal financial institutions are inflexible in their operations,
with respect to the needs of the small-scale enterprises and the poor people in the rural areas who
may not have collateral or well-written feasibility studies to solicit for loans. As such, the rural
areas, where the majority of poor people live, remain either under -banked or served by informal
financial institutions. It is estimated that only 10% of the rural population and 5% of the rural
poor have access to financing services in terms of saving and credit. This limits the rate of
investment and employment creation particularly in rural areas, thus constraining overall
economic growth (UBOS and MSEPU, 2003). A wide range of Micro Finance Institutions
(MFIs) have, however, existed in Uganda in many forms and for many years to respond to the
resource gap in the market and are working to become more responsive to the real needs of their
clients who constitute low income households, thereby contributing to economic growth.

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However, though Uganda has a long history of informal finance, a more organised micro-finance
industry picked momentum in the early 1990s following the liberalisation of the financial sector.
The industry is therefore still young, but very vibrant. In the last over ten years, the industry has
grown as high as 70 percent per annum. Despite this growth, the rural financial sector in Uganda
is largely underdeveloped, fragmented and not adequately integrated with the formal financial
sector. The costs of operation of MFIs are also generally higher than those of the formal financial
institutions since MFI clients are generally located a distance from the branches and require
continuous monitoring. Interest rates are hence necessarily higher for loans obtained at MFIs
than those on loans obtained from the formal financial institutions (Ledgerwood et al, 2002). To
reverse this trend, the government and key stakeholders have started initiating policies aimed at
implementing market based rural financial services on a sustainable basis with the major
objective of increasing access to and availability of micro finance services in rural areas where
the poor people live and work. Therefore, the role played by MFIs is high in the growth strategy
of Uganda. In its original form, micro-finance business was considered as ‘charity.’ As a result,
the performance of the schemes was adversely affected by very poor loan recovery, inefficiency
and high management costs which consequently led to underperformance or collapse. The view
that prevailed for many years was that micro borrowers were too poor to pay back their loans at
commercial rates and therefore, any loans to them must be subsidised.

However, over the past decade the industry has transformed into a large, dynamic private sector
catering for the financial needs of the low -income households and economically active poor.
Over the years, the MFIs have demonstrated considerable comparative advantage in their service
provision to rural and low -income urban clients. Furthermore, most institutions have embraced a
more business oriented outlook and maintaining their target groups of economically active poor
while focusing on achieving operational and financial sustainability.

These therefore call for a research to be carried out to cater for the sound management and how it
impacts on the performance of the microfinance institutions in Uganda.

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1.2 Statement of the problem

Commercial banks traditionally lend to medium and large enterprises which are judged to
be creditworthy, avoid doing business with the poor and their micro enterprises because the
associated cost and risks are considered to be relatively high. Microfinance institutions
(MFIs) have therefore become the main source of funding micro enterprises in
Africa and in other developing regions. Anyanwu (2004)

Five banks including the popular Cooperative Bank unexpectedly closed because of internal
financial problems, partly due to inadequate prudential supervision, which led to gross
violation of banks regulations. They fell short of capital requirements stemming from
problems of poor loan documentation, inadequate provisioning, insufficient risk assessment
capacity, internal fraud and other management weaknesses. Moreover, the partial
privatization of the Uganda Commercial Bank, which resulted in the closing of many rural
branches, left large areas of the country without any formal financial services and opened
the way for microfinance institutions this fact prompted the researcher to investigate sound
management and performance of microfinance institutions.

1.3 The purpose of the study
The purpose of the study was to assess the sound management and performance of microfinance
institutions.

1.4 Objectives of the study
1. To investigate the management styles used by microfinance.

2. To examine the impact of sound management on performance.

3. To establish the other factors for the performance of the microfinance institutions.

1.5 Research questions
1. Which management styles are used by microfinance institutions?

2. How does sound management impact on performance of microfinance institutions?

3. What are the other factors for the performance of the microfinance institutions?

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1.5.0 Scope of the study.

1.5.1 Content scope;
Sound management was the independent variable and performance of the microfinance
institutions was the dependent variable.

1.5.2 Functional scope;

This study took look at sound management principles and how these have impacted on the
performance of the microfinance institutions and these included the financial, operational and
risk management of the microfinance institutions.

1.5.3 Geographic scope;
The findings of the study are limited to pride microfinance limited (MDI) located along plot 8-10
Metropole house along Entebbe road in central division Kampala Capital City.

1.5.4 Periodic scope;
The study was carried out in the period of four months that is between April to August 2012.
And the review was from 2007 to 2012.

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1.6 Significance of the study
The information that was generated from the research study is useful in the following ways;

The proposed research helped the researcher in understanding the sound management principles
and how these have been use in the organisations to ensure effective performance and how the
absence of sound management affects the performance of the microfinance institutions.

The study is of vital use to the microfinance institutions as it helps them to understand the impact
of sound management on their performance and also goes further in to establish the other factors
that affect the performance of the microfinance institutions.

The study helped to give the researcher the needed confidence as it will enable me to apply the
class theory work in the actual field for example the knowledge of collecting the information
using the different methods such as interview and observation.

The study also enabled me boost my confidence as it will enable me to interact with several
people in the profession. That’s to say interact with the practicing members which enabled me
gain the insight of the actual field.

The study is of vital use to the regulatory bodies such as AMFIU to get to understand the reasons
for the performance of the microfinance institutions and the impact of the management of these
institutions on their performance.

The study was also of vital use to me as it enabled me be eligible to qualify for the award of a
bachelor’s degree of Kyambogo University as this is a necessity.

All the other institutions that want to assess the impact of sound management on the performance
of the microfinance institutionscan use this research study as a benchmark for their findings and
thus compare the results that will be contained in this research and their findings so as to check
out for the discrepancies.

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1.7 Definition of the terms;
Microfinance;
According to Elahi and Danopoulos, (2004) microfinance is defined as “the attempt to improve
access to small deposits and small loans for poor households neglected by the banks.” mainly the
commercial banks.

Sound management;
Refers to effective methodologies and the adequate management and coordination capacity
necessary for the success of institutions and these include having the right policies in place to
foresee the implementation and achievement of the organisation’s objectives.

Performance;
Performance refers to the ability of an enterprise to attain its predetermined objectives and be in
place to access the financial resources.

Internal controls;
According to Whittington and Pany internal controls refer to systems set in place to ensure that
the organization attains its predetermined objectives such as budget achievements, ensuring legal
conformance and timely preparation of financial statements.

Microfinance products;
These refer to the financial services or products that are provided by the microfinance institutions
to cater for the different needs of their clients and these may include money transfer, loan
extension, health care schemes and price protection for coffee farmers and salary based loans.

Interest;

Interest is a fee paid by the borrower to the lender on borrowed cash as a compensation for

forgoing the opportunity of earning income from other investments that could have been made

with the loaned cash. Richardson et’al (2010)

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CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.0 Introduction

This chapter provides the in-depth information or existing information the problem, shows how

the study fits into what the other academicians and researchers have done. The literature

reviewed is on the sound management and the performance of microfinance institutions with

guidance from the research objectives.

2.1 The concept of microfinance institutions;
According to the Poverty Eradication Action Plan (2000) the development of micro finance
services became an important policy intervention recommended in all plans of the government in
a way of alienating poverty and in this context that over the last few years, the GOU in
collaboration with donors and other stakeholders initiated have initiated a number of programs
aimed at developing the micro finance industry.

This recognition is evidenced by rapid advances by the government, donors and practitioners in
the development and implementation of programs that support micro finance initiatives in
Uganda, as well as the dramatic expansion of the micro finance industry. The micro finance
industry had for a long time operated under a number of constraints, among others: lack of legal
recognition, weak institutional capacity and unsustainable sources of funding. As explained in
the Annual Supervision Report Issue, (No. 2, December 2011).

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Ledger (2002) highlighted the structure of the micro finance industry in Uganda is shown below.

Category Number Characteristics
A 5-8 At or nearing operational or financial self-sustainability. Well
documented operational procedures. Fairly good MIS, well qualified
management and staff. Applying Micro Finance best practices. Often
registered as companies limited by guarantee. Active clients over
10,000.
B 10-15 Mainly NGOs. Also registered as companies limited by guarantee.
Charge market interest rates, have adapted a business-oriented
approach to poverty alleviation, and are moving towards Operational
Self-Sufficiency (OSS). Fair documentation of procedures and MIS.
Good management, OSS at levels between 50% and 85%. Active
clients range from 5,000 to 10,000.
C 45+ Mainly small local NGOs with limited resources and clientele. Fairly
familiar with “Best Practices” and are within the industry’s
information loop. However, most have modestly qualified
management and are still far from reaching OSS (35% to 49%).
Active clients ranging from 500 to 3,000.
D Numerous Small community based organisations, generally not well known in
the sector. Largely outside the national micro finance information
loop. Most are generally little aware of micro finance best practices.
Focused on rural outreach but have minimal numbers of clients.

Source: Ledgerwood et al (2002).

2.2 Investigating the management styles used by microfinance as a factor for sound
management.

Many organizations struggle to meet the challenges of optimizing performance and how should
they measure performance what they should measure and how leaders can ensure that

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communication channels throughout the organization are open. Too often, organizations will put
in place measurement systems and structures that deliver the opposite of what they expected yet
with sound management in place, the systems work for the best and in order to ensure this, the
bank of Uganda Annual Supervision Report Issue, (No. 2, December 2011) reported that;

2.2.1 Human Resource and Management

Survey findings indicate that the management teams of most MFIs in both urban and rural areas
have all obtained university and tertiary levels of education, respectively. However, the majority
of the member based MFIs lacked business management skills. Further, the experience of
management teams reduces proportionately to loan portfolio, while most MFIs engage more
females than males in their routine activities. One strong implication is that these institutions are
not only providing financial services to those without access to them in the formal financial
sector, but they also provide employment this was indeed also sighted in Kamwana’s report
(2011).

2.2.2 Regulation and Supervision of Micro Finance Institutions

In order for MFIs to effectively fulfill their role of intermediation and to grow in a sustainable
manner, these institutions must operate in a financially sound and safe manner. Prudential
regulation and bank supervision of the MFIs, hence, became necessary. In this regard, the Micro
Finance Deposit-Taking Institutions (MDI) Act (2003) was enacted

The Act stipulates that all micro finance providers, including non-deposit taking institutions and
very small member-based organizations mobilizing deposits from their members, to be
categorized under Tier 4. Which institutions will neither be regulated nor supervised by BOU
under the proposed law. Consequently, they will not be allowed to take deposits from the public.
These MFIs will be overseen by an umbrella body, the Association of the Micro Finance
Institutions of Uganda (AMFIU). An important role played by the AMFIU in supporting growth
of the MFI industry was to develop uniform performance indicators and reporting format that
constitutes a performance monitoring system for the non-regulated MFIs.

2.2.3 The management style of the microfinance institutions.

Ledgerwood et’al (2002) advanced that several management styles are used in the management
of microfinance institutions which help ensure sound and effective management for the improved
9

performance of these institutions and these styles are not used individually but rather in
association with other management styles.

Managers have to perform many roles in an organization and how they handle various situations
will depend on their style of management. A management style is an overall method of
leadership used by a manager. There are two sharply contrasting styles that will be broken down
into smaller subsets later and these were autocratic and permissive as explained in Kamwana’s
report (2011).

He further pointed out that each management style has its own characteristics in that autocratic
leaders makes all decisions unilaterally while permissive leaders permit subordinates to take part
in decision making and also gives them a considerable degree of autonomy in completing routine
work activities. Combining these categories with democratic (subordinates are allowed to
participate in decision making) and directive (subordinates are told exactly how to do their jobs)
styles give us four distinct ways to manage:

The directive democrat involves the organizations using this style of management to have the
managers encouraging participative decision making and close supervision of the subordinates.

The other style is having the directive autocrat and this way, the manager makes decisions
unilaterally and closely supervises subordinates as they perform their activities to iron out
irregularities.

The permissive democrat like the directive democrat allows participative decision making in the
organization however the difference is that he/ she gives subordinates latitude in carrying out
their work.

Yet the permissive autocrat like the directive autocrat also makes decisions unilaterally however
this one gives the subordinates latitude in carrying out their work. Ledgerwood (2002) however,
recommended that managers must also adjust their styles according to the situation that they are
presented with so as to ensure a sound management style and thus listed the four quadrants of
situational leadership that depend on the amount of support and guidance needed:

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Kamwana (2011) emphasizes that telling works best when employees are neither willing nor able
to do the job thus creating a high need of support and high need of guidance by the senior
managers of the organization.

And that delegating works best when the employees are willing to do the job and know how to
go about it but have a low need of support and low need of guidance from the senior
management which may be caused by fear of what the manager would think of them.

Richardson et’al (2008) proposed that the Participating manager works best when employees
have the ability to do the job, but need a high amount of support that is to say that since the
employees are knowledgeable about the job, the have a low need of guidance but high need of
support).

Yet the selling manager is referred to as one who works best when employees are willing to do
the job, but don’t know how to do it that is to say the employees have the desire to carry out the
job but need to be guided in order to carry out the particular job. The different styles depend on
the situation and the relationship behavior amount of support required and task behavior and the
amount of guidance required.

2.2.4 Coordination in the Microfinance industry for sound management.
Coordination in the Ugandan micro finance industry has been enhanced under the guidance of
the Micro Finance Forum, which is comprised of government agencies, donor agencies and other
practitioners who support development of the industry. The Micro finance Forum meets
regularly under the chairmanship of the Ministry of Finance, Planning and Economic
Development, to discuss new developments and constraints in the micro finance industry.
Uganda also exhibits a high level of donor coordination and was, hence, selected as one of two
countries to be studied at field level as part of the Consultative Group for assistance to the Poor
CGAP-led Donor Peer Review process to pilot ways of improving aid effectiveness in the micro
finance industry.

2.3.0 Examining the impact of sound management on performance.

The performance monitoring system, has established consistent standards, which will contribute
to risk control, adherence to minimum requirements and best practices within the micro finance
industry so as to assess the impact of sound management on the performance of the microfinance
institutions. Various scholars have forwarded what they think could be the impact of sound

11

management on the performance of institutions.

Over the past decade, the Government of Uganda via the Ministry of Gender, Labour and Social
Development (MGLSD) has implemented and/or supported various micro credit schemes aimed
at fighting poverty in the country. Most of these schemes focused on the provision of revolving
funds for micro credit to households at the grass root level and the poor management of these
schemes has made majority of them to hit a snag and fail to accomplish the desired goals of the
scheme (Kamwana 2011).

In view of this, there was need to restructure the surviving schemes with the aim of instituting
measures to recover outstanding loans, and divesting or writing off non-performing loans,
government withdrawal from the provision of credit and transferring the recovered resources to
credible MFIs capable of delivering sustainable services under a new Implementation Plan to
expand the outreach of sustainable micro finance meaning with good management in place then
the objectives of the schemes such as recovering outstanding loans could be attained.

The performance monitoring system has been developed in consultation with all stakeholders
and is expected to contribute to growth of the industry in a number of ways as it enhances
planning of MFIs through clearer targets and benchmarks for their expected development, and
also improves financial management for the better performance of the microfinance institutions
thus leading to increased profitability of the microfinance institutions as noted in the Micro
Finance Capacity Building Framework (UCAP). (2011)

Sound management increases the awareness and ability of MFIs to report on their performance,
for internal management purposes as well as external reporting purposes, and through uniform
reporting, the MFIs save time that they spend in applying for funds and reporting to different
funding agencies, and time that funding agencies take in assessing applications and reports from
MFIs . This therefore implies that sound management facilitates timely preparation of financial
statement as forwarded in the Micro Finance Capacity Building Framework (UCAP) (2011).

Kamwana (2011) notes that the transparency and accountability of the microfinance institutions
is increased in the micro industry as it safeguards against mismanagement of funds and fraud and

12

also contributes to protecting clients, thus increasing public confidence in the industry for
improved performance.

Sound management also ensures reliable and up-to-date information on the performance of the
industry which is useful to different stakeholders including policy makers and funding agencies.
And also enhances Coordination within the sector and lobbying and enables advocacy on
important issues affecting the sector to be facilitated Kamwana (2011)

The Apex Sub Committee of the Uganda Micro finance Forum (2011) proposed that there is
need to ensure good corporate governance within these institutions in order to build public
confidence in these institutions and ensure that they grow in a sustainable way.

2.4.0 Establishing the other factors for the performance of the microfinance institutions.

There are other factors apart from the management style of the microfinance institution that
affect its performance and these factors range from the technological to the political factors
prevailing in the country as reported by Kamanya (2011)

The level of political stability in the country affects performance in a way that riots and
demonstrations bring activities in the economy to a standstill depriving the institutions from the
would be depositors, and the borrowers thus lowering their performance levels.

Among other factors that lead to poor performance of Organizations in not only Uganda but in
the entire world is the difficulty in acquiring financing or credit to cover both short and long term
operational needs. This has led to short term and long-term liquidity problems which have
resulted in not only poor performance financially but in many cases total business failure. New
data on 129 Countries investigates cross-country determinants of private credit, using current
information on legal creditor rights and private and public credit registries in 129 countries.
Djankov, McLeish and Shleifer (2007).

The government is another source of capital, particularly loan capital for MFIs in the form of
revolving funds and rural farmers support schemes. Funds from government and donors are
obtained at concessional terms. However, the underlying danger with donor funds is that these

13

funds may dry up in future and the MFIs may find it difficult to mobilize funds from other
sources. Therefore, most MFIs are considering possible strategies to ensure their sustainability.

An analysis of legal reforms also shows that improvements in creditor rights and in information
sharing precede faster credit growth. We also find that creditor rights are extremely stable over
time, contrary to the convergence hypothesis. Finally, we find that legal origins are an important
determinant of both creditor rights and information sharing institutions. The findings indicate
that Uganda many of the 129 countries in the survey is still structural immature to support the
modern flexible financing options available in the highly developed world. Djankov, McLeish
and Shleifer (2007).

One challenge for organizations in Uganda which is the same for the entire business world is
economic instability resulting from the recent global economic meltdown. According to the
information sharing site Wikipedia, the 2007–2012 global financial crisis, also known as the
Global Financial Crisis and 2008 financial crisis, is considered by many economists to be the
worst financial crisis since the Great Depression of the 1930s. An article on October 19, 2011 by
Teresa Trasino in the IMFSurvey Magazine, urges that one of Africa’s and specifically the Sub-
Saharan region’s main challenges is the steady increase in consumer price inflation to an average
of 10 percent in June 2011 against 7½ percent in June 2010 which led to increase in the lending
interest rates and reduction in customer base for the Microfinance institutions.

Although inflation has been driven in part by higher food prices, accelerating nonfood inflation
indicates that second-round effects such as claims for higher pay are also taking hold. In many
countries, exchange rates are also coming under significant pressure leading to low returns on
export trade. For business organizations inflation distorts consumer behavior, redistributes
income in a negative way as both fixed income earners and those lacking bargaining power will
become relatively worse off as their purchasing power falls and predicting the future to
accurately calculate prices and returns from investments become impossible. This has greatly
undermined the power of the clients to make deposits with the microfinance institutions and also
scared away borrowers which have hampered the performance of the MFIs.

According to a survey done by the World Bank called (Doing Business 2011) in which they try

14

to measure business regulation in a country using the ease of doing business index. This index
shows that the taxes imposed on the microfinance institutions lower their profitability and
greatly hamper their efforts to invest in diversifying in regions so that they open up branches
elsewhere and increase on their customer base.

The banking sector in Uganda is not very well developed so the lack of access to banking
institutions and this has adversely affected the performance of many institutions. By the
mere fact that financial institutions mostly in rural areas are not well developed acts as an
obstacle as the microfinance institutions end up only limited to the clients that are located in
the urban centers while ignoring those in the rural areas and leaving them to keep their
money under their pillows and remaining ignorant about the securities and shares availed by
the microfinance institutions to increase on their capital base.

2.5 Microfinance products and services that enable microfinance institutions to perform

According to Ledgerwood etal, (2002), microfinance institutions do not have appropriate
liquidity management techniques in place and thus their loan terms range from one month to
twelve months. There is little similarity in the loan sizes and terms offered by the different MFIs.
However, the majority of loans are of three months duration. Most MFIs report a fairly high
recovery rate of about 85 percent on their loan portfolio and the institutions have managed to
come up with the following products so as to improve their market share;

Safety and Money Transfer;
Some microfinance institutions provide services to their clients such as safe custody of valuable
items for example land titles and wills etc. They also assist their clients to transfer their money
safely from one point to another especially in rural areas.

Salary Based Loan Products
Where the employer is required to deduct the repayments from the monthly salary cheques of his
employees and transfer them to the participating microfinance institutions and because of these
according to report by the Rural credit finance (2010), the salary based loans are provided with
the clients’ salary being the security and deducted at the end of every year.

15

Health Care Schemes;

Micro Care Limited has introduced a health financing scheme for clients of MFIs and their
immediate family to access better health care at affordable prices through agreements with
hospitals and microfinance institutions and under this scheme, the clients form groups and pay
up a minimal up-front quarterly premium to Micro Care Limited as per its report in (2011).

Price Protection for Coffee Farmers;

A pilot price protection scheme has been set up by Uganda Cooperative Alliance (UCA) and
Union Expert Services (UNEX) Limited to enable farmers to purchase a price insurance that will
enable them to reap a guaranteed price for their coffee products. The total product of farmers will
then be insured at a minimum fixed price through an international broker trading at the London
market as per the report by Karuhanga (2010).

Microfinance institutions also deal in the provision of foreign exchange services to the clients
dealing in exchanging of financial currencies such as American dollars, British pounds, the rands
and other currencies so as to make life easier for their clients and increase their profitability.
Yet majority of the microfinance institutions who mainly employed the group lending
methodology approach especially for small loans usually repayable over 4 - 6 months, a good
number of them have now introduced individual loan products to cater for clients who need
larger loans for growing businesses and these take form of;

Some MFIs testing products specifically suited to agricultural borrowers, particularly the
smallholder farmers where repayment schedules are designed to complement the seasonal cash
flow of the farmers.
And last but not least, the microfinance institutions in Uganda also take part in exhibition and
marketing their products and services to potential customers and business partners as per the
guidance given by Ocici (2012).

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2.6.0 Ways of improving the performance of microfinance institutions

The microfinance institutions can however better their performance by adopting the following
policies presented by Walday Amha (2008)
Given the tough environment where MFIs are working, the performance of microfinance
institutions in Uganda has been quiet impressive. Thus if they are to increase their pace in
outreach and quality of services provided to their clients in the future, and improve on their
financial and operational performance, they need to address the following issues.

Microfinance and other micro lending institutions in Uganda should focus on the innovative and
responsiveness of their financial products to the needs of their clients, i.e., they should learn from
what their clients want and then produce products by incorporating the information from market
research or needs survey, on one hand, and develop built-in tools to measure the impact of their
program on the needs of their clients on the other Walday (2008)

Microfinance institutions such as Pride microfinance and Finca Uganda should increase outreach
by providing cost effective and/or affordable financial services to the poor. Although there are
success stories in delivering financial services to poor women through microfinance institutions,
particularly in Asia, there is still a dire need of using microfinance as a tool of empowering
women in the Ethiopian context. The revolution in microfinance should focus on reaching the
very poor and the marginalized groups that reside in remote and pastoralist areas such as Kigezi
and even the untapped Karamoja region. However, the scaling up should be done without
distorting the markets explained Kamwana (2011)

There should be an improvement in access to loan capital and developing efficient and effective
systems for mobilizing savings are critical for increasing outreach and capitalization of MFIs.
Funds such as equity, quasi-equity, social and private investors (both domestic and
international), corporations, foundations, banks, selling bonds, and securitization should be
exhausted to meet the large funding gap so as to encourage expansion as noted by Walday (2008)

Walday (2008) further argued that the growth and performance of microfinance institutions
mainly depends on their capacity. Thus requires improvement in governance, human resource
development, systems development in internal control, business plan, marketing strategy and

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technology development both MIS and front end technologies, mobilization of funds through
mobilizing saving, linking with banks, attracting private investors by selling shares, attracting
social investors.

For a long time, the microfinance markets have been underdeveloped and may remain so if
investments in communication and economic infrastructure as well as adequate incentives are not
included in development policies at national level.

There should be a clear role of the global players in promoting microfinance in Ethiopia. This
includes: facilitate funding of microfinance institutions by leveraging private capital, providing
technical assistance, training, and building capacity and knowledge sharing.

One of the major factors that affect the performance of microfinance institutions in Ethiopia is
the high risk associated with unfavorable weather on production (drought, floods), disease or
pest damage, economic risks due to uncertain markets and prices, productivity and management
risks related to the adaptation of new technologies, the microfinance institutions thus need to
seriously consider innovative and cost effective risk protection methods and products for
example on Agricultural loans.

Creating an enabling policy and regulatory environment has a significant impact on growth,
productivity and efficiency of microfinance institutions in Uganda thus the Ugandan government
and the financial players such as the association of Microfinance Institutions in Uganda should
create policies that can uplift the sector to better and higher prospects as there is still a chance for
more un banked clients and regions to tap on.

It is also recognized that there are some areas in the country, which are under-served by MFIs. In
particular, in the northern part of the country delivery of micro finance services is difficult due to
insecurity which has led to a large number of people living in displaced peoples’ camps,
disruption of economic activity, and destruction or deterioration of infrastructure such as roads,
trading centers and marketing societies. Though current efforts to improve the security
situation10 in these areas will diminish some of this risk, further motivation is needed to allow
MFIs to venture into such areas without taking on the full risk. Under the UCAP it has been
proposed that the GOU provides for a "Remote Rural Outreach Fund" to be established to avail

18

operational grants to good practice MFIs willing to expand their services to areas of the country
that do not currently offer conducive markets for micro finance.
In addition, a mechanism is being developed by stakeholders in the micro finance industry for
providing grant support to enable MFIs access to affordable capacity building. While this will
facilitate MFIs access to affordable capacity building, the databases managed under the UCAP
framework will be enlarged to include suppliers of capacity building services and appropriate
training materials for rural clients, in preparation for response to demands identified by the
FEWs from the under-served sub-counties.

The MDI Act (2003) which is embedded within an overall regulatory and supervisory 4-tier
framework clearly establishes the responsibility of Bank of Uganda (BOU) to license, regulate,
supervise and discipline all deposit taking MFIs, under Tier 3. 5 A number of regulatory and
prudential guidelines have been set under the MDI Act (2003) to ensure that MDIs operate in a
sound and manner and do not expose them to excessive risk taking. These include the following:
6 (1) Establishment of minimum capital and liquidity sufficient for deposit taking and
intermediation

2.7 Conclusion

In conclusion therefore, the management of an organization is the pillar for the organisation’s
effective performance however, for there to be sound management, it may depend on several
factors such as the style of management in the company, the human resource the level of
autonomy accorded to the employees and the value leverage in the organization. This affects
performance in encouraging timely preparation of financial statements, ensuring compliance
with the law and motivating employees to increase on their productivity. However other factors
such as the availability of capital, the regulation of the sector, the current economic conditions
and the products and services provided by the microfinance institutions affect the performance.
However as noted the government should enact a better regulatory policy to cater for the MFIs
and also encourage competition and infrastructural development.

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CHAPTER THREE:

METHODOLOGY

3.0 Introduction
This chapter presented the research design, the study population and the methods of sampling the
researcher used. The tools for collecting data and how they were validated, the process of
collecting data and anticipated limitations were also explained out here.

3.1 Research design
The conceptual framework of this study was to discover and describe the participant’s
observations and experiences about sound management and performance of the Microfinance
institutions. The researcher sought to explore the concept of microfinance, the principles of
sound management, the impact of sound management on performance of the microfinance
institutions and the other factors that affect the performance of the microfinance institutions. A
structured approach was appropriate for answering the questions and meeting the objectives of
the study therefore qualitative and quantitative methods of data collection were used. This sought
to establish the impact of sound management on the performance of microfinance institutions.

3.2 Population of study.
The population of this study included the following personnel, the human resources departments
in Organizations as they are responsible for the implementation of sound management in the
institutions, the managers of the institutions, the supervisors and the entire staff plus the clients
of the enterprises. These included both ladies and gentlemen.

3.3 Sample size and sampling techniques.

3.3.1 Sample size.
The study took into consideration the availability of correspondents for the given sample
population for example the 2 top executive were asked for information. And to avoid bias in the
survey the researcher ensured that out of every three respondents, atleast one of the respondents

20

was female. The researcher also made sure that the staffs were not left out as they were vital in
the study and had the basic information that was needed for the study to be carried out.
The researcher ensured that at least 20 out of the 40 respondents selected were among the low
line staff of the organization. This made the total sample population of 40 respondents.

3.3.2 Sampling Technique
The sampling techniques used were the random sampling technique as it gives every item in the
population a chance of being selected and thus give the appropriate information needed. The
other was the purposeful method where the key informants like the human resource personnel
and the administrative manager who were responsible for the implementation of sound
management in organisations were asked for their opinion about the sound management and the
performance of the microfinance institutions.
A larger sample was selected so as to minimize the sampling error.

3.3 Instruments of data collection.
This presents the instruments of data collection used while carrying out the study and since no
instrument if used exclusively would collect the sufficient data needed thus there was need to
blend these instruments and this included.

3.3.1 Interview Guide.
Under this technique, the researcher had the respondents asked questions and get the answers
directly from them. This was a question answer format whereby the researcher just had to note
down the information that the researcher received from the respondents. This information
acquired here was wider and made it easier to get more details whenever clarification on the
information was needed as the information was collected in the presence of the respondents.

3.3.2 Questionnaires.
The researcher closed questionnaires to the respondents. The questionnaires were distributed to
the respondents and they allowed ample time to return the questionnaires with the answers on
them. This method was more used as it allowed the respondents who were not free to speak in
the presence of other people to freely give in their views about the problem and yet also allowed
more information to be collected as it was able to address different respondents at the same time.

21

3.3.3 Observation schedule.
The researcher travelled to the pride microfinance offices along Entebbe road and observed the
management of the institution perform their duties in order to get more information about the
presence or absence of sound management in the organization. On doing this, the researcher was
able to establish the relationship that exists between the management and the performance of the
entity.

3.3.4 Documentary study and desk research methods;
This method involved the collection of data from the published and printed company material
and also information from the archives of the company records internet and the journal so as to
get the relevant information needed for the study which was about the sound management and

3.4 Data Analysis and presentation;
Data was analyzed both qualitatively and quantitatively by use of percentages using the excel
spreadsheets for example depending on the number of questionnaires distributed and those
returned and the variables adopted from the survey instruments pertaining the performance of the
microfinance institutions was cross tabulated against the independent variable which was sound
management.
The results were summed up in form of qualitative and quantitative measures so as to be
computed and results generated for the interpretations that were made and conclusions and
recommendations drawn out of the study.

3.5 variables of the study;
The data had two variables that is the dependent and the independent variables.
The dependent variable was performance of the microfinance institutions and sound management
was the independent variable.

3.6 Validation of tools
Validation was achieved by making sure that the questions relate to the objectives of the study.
Each research question listed examined and information required to answer it was listed and
questions formulated.

22

Piloting of the questionnaire was done to see if it obtained the required results. Five people were
asked to read through and see if there were any ambiguities which would be noticed, and also to
comment on the length, structure and wording of the questions. Alterations were made
accordingly.

3.7 Data collection process
Because it was a quantitative research, the researcher relied on quite extensively pre-designed
questionnaire. Information was collected primarily through administering the questionnaire to
key informants between representatives. Where ever possible personal interviewing was used so
that the interviewer had to guide the interviews, explore issues and probe as the situation
required.

The researcher explored the general topics relating to performance of the microfinance
institutions to uncover the observations and views of respondents.

The participants’ observations were supplemented with gathering and analyzing documents such
as published reports, letters, announcements, and samples of free writing about the topic,
journals, policy statements, newspaper articles, magazines, textbooks, press releases, internet
articles and other print material when available.

3.8 Analysis methods
Data was edited to detect errors and omissions and classified into simple classes on the basis of
common characteristics. The researcher then summarized and tabulated the information to
facilitate comparison was done using systems such as the excel spreadsheets for frequencies on
the charts.

3.9 Limitations
The following limitationsencountered during the research process;

1. There was a problem of unreliable information due to misinterpretation of the research
questions and purpose of the study by some respondents. The researcher overcame this
problem by ensuring that respondents understood their purpose of giving correct information
through informal explanations.

23

2. There was insufficient funding by respective authorities. This limited the researcher’s
movements and area of coverage resolved through the efficient use of the available resources
by the researcher and also requests for more funding from friends where necessary.

3. The research process was slow and a bit difficult due to lack of skills and experience in
research as this was the researcher’s first time to get exposed to it this was managed through
constant consultation with the research supervisor and other experienced people in the field
of study.

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CHAPTER FOUR

DATA ANALYSIS, PRESENTATION AND INTERPRETATION OF THE FINDINGS

4.0 Introduction;

This chapter is to look at the analysis of the data obtained from the field and presenting the data
in the relevant figures and tables and the interpretation of the findings from the field to access the
basic understanding of the problem statement and develop the possible solutions to the problem.

4.1.0 Presentation of findings about the background information of the respondents;
In the bid to get to know the number of respondents that completed and returned the
questionnaires, the researcher went ahead to examine the details of all those that responded and
the findings have been tabulated as below. The researcher established that the gender, duration of
service in the organization and the age bracket of the respondents had an impact on the response
as these characteristic could have affected their participation in the survey.

4.1.1 Table 1: Showing the gender of the respondents
Gender Frequency Percentage

Males 18 45%

Females 22 55%

Total 40 100%

Source: Primary data

25

Findings from the table1 and figure 1 show that 45% of the respondents were male yet 55% of
the respondents were female. This means that the majority of the respondents that answered and
returned the questionnaire were females and yet they were also easily accessible. The numbers
could also be attributed to the fact that majority of them were tellers which were mainly female.
These findings have also been represented on the pie chart as below.

4.1.2 Table 2: Findings about the age bracket of the respondents
Age bracket Frequency Percentage

Below 20 years 4 10%

20 to 35 years 26 65%

Above 35 years 10 25%

Total 40 100%


From the findings from table 2 show that 10% of the respondents were below the age of ten yet
the other 65% were between the age of 25 and 35 years of age. Yet 25% of the respondents were
above the age of 10. The findings of this study were attributed to the fact that the company does
not employ individuals below the age of 18 which explains the few numbers for those below the
age of 20 and majority of the Guards are between the age of 20 and 35 thus the large percentage
of respondents from this group. The respondents who were above the age of 35 represented 25%

26

of the respondents. This is to the effect that the organization attracts and maintains employees in
the organization and by the age of 30 many of them would have gained vital positions in the
organization thus form majority of the respondents.

4.1.3 Table 3: Findings about the distribution of departments of the respondents
Department in the organization Frequency Percentage

Accounting department 10 25%

Human resource department 6 15%

Top management 4 10%

General staff 20 50%

Total 40 100%


The findings from table 3 show that 25% of the respondents were from the accounting
department while 50% of the respondents were from the general section of the institution yet the
department of human resource was represented by 15% of the respondents. The top management
was also represented by 10% of the correspondents and this is attributed to the fact that the
accounting department comprises of the tellers that were easily reached while the general staff
included most members of the organization thus formed the highest percentage the top
management were few due to the fact that most of them were busy and not easily reached for
comment.

4.1.4 Table 4: findings about the duration taken by the employees in the company.
Duration in the organization Frequency Percentage

0-5 years 24 60%

5-10 years 14 35%

Above 10 years 2 5%

27

Total 40 100%


The findings from table 4 show that majority of the respondents have worked with the
organization for the period of less than five years represented by 60% of the respondents while
35% of the respondents argued to have worked in the organization for between 5 to 10 years yet
only 5% of the respondents confirmed to have worked there for more than 10 years. This is
attributed to the fact that the organization evolved around 2003 and the founding members form
part of the 5% of the respondents as majority ought to have joined other businesses.

4.2 Investigating the management styles used by microfinance institutions.

For an organization to have sound management, the management styles of the entity should be in
line with the principles of the sound management styles. The researcher thus in a bid to find out
the management styles applied in Pride microfinance ltd (MDI), the following results were
established from the study.

28

4.2.1 Table 5: Showing the management styles applied in Pride microfinance ltd (MDI)
Management style Frequency Percentage

Autocratic 4 10%

Value leverage 18 45%

Management by wandering around 6 15%

Laissez faire 4 10%

Democratic 3 8%

Persuasive and consultative 5 12%

Total 40 100%


According the findings of the study presented in table 5, 10% of the respondents said that the
management of the microfinance institution uses the autocratic style of management yet 45% of
the respondents said that the management style applied in the company is the value leverage
where by the system ensures that everyone, at every level, is focused on improving the outcomes
that they are creating. 15% of the respondents said that the management manages by wandering
around, 10% said the organization uses the laissez faire system yet 8% of the respondents were
of a view that the institution uses the democratic approach of management however 12% of the
respondents said the company uses both persuasive and consultative style of management.

4.2.2 Table 6: Showing whether the management styles applied are effective in the
organization.
Effectiveness of the management style Frequency Percentage

29

Agree 30 75%

Disagree 6 15%

Not sure 4 10%

Total 40 100%


The findings from table 6 show that 75% of the respondents agreed to the fact that the
management styles are effective in ensuring better performance of the organization and 15% of
them disagreed to this fact yet 10% of the respondents were not sure of the response to the
effectiveness of the management systems being applied in the company.

4.2.3 Table 7: Showing what the respondents think of the microfinance’s management
style.
Views of the respondents Frequency Percentage

The management is very autocratic 4 10%

The management of the MFI encourage innovations 18 45%

The management manages mainly by wandering around. 10 25%

The management respects every employee in the 8 20%
organization

Total 40 100%


According to the findings of the study, 10% of the respondents were of a view that the
management of the institution was autocratic yet 45% of the respondents said that the
management of the institution encourages innovation in the entity and 25% of them said
management manages the organization mainly by wandering around yet 20% 0f the respondents
were of the view that management respects every employee in the organization which implies

30

conformity to the guidelines for effective corporate governance.

4.2.4 Table 8: Showing personnel with responsibility of ensuring sound management in
the company.
Responsible personnel Frequency Percentage

The human resource committee 4 10%

The human resource manager 8 20%

The managing director 10 25%

Everyone plays his/ her part to ensure sound 18 45%
management in the institution.

Total 40 100%


The findings from the study presented in table 8 shows that 10% of the respondents were of the
view that the human resource committee has the responsibility of ensuring sound management in
the institution, 20% of the respondents forwarded the human resource manager is the one
responsible yet 25% of the respondents said that the managing director had the responsibility of
ensuring sound management in the organization however, 45% of the respondents argued that
everyone in the organization plays his/ her role to ensure sound management in the company.

4.3.0 Examine the impact of sound management on performance of microfinance
institutions.
On trying to find out whether there was a relationship between sound management and the
performance of the microfinance institutions, the researcher in this section examined the impact
that sound management has of performance of the microfinance institutions and the findings
have been tabulated below.

31

4.3.1 Table 9: Whether the management style has an impact on the performance of the
microfinance institution.
Response Frequency Percentage

Yes 26 65%

No 10 25%

Not sure 4 10%

Total 40 100%


According to the findings from table 9, 65% of the respondents said that the management style
has an impact on the performance of the microfinance institutions yet 25% of the respondents
said no to the fact that the management style has an impact on the performance of the institution
yet 10% of the respondents were not sure of whether the management style has an impact on the
performance of the organization.

4.3.2 Table 10: How sound management affects the performance of microfinance
institutions
Effect on performance Frequency Percentage

Enables quick and timely preparation of financial 18 45%
statements

Quick and timely decision making is encouraged 10 25%

Leads to reduced levels of rivalry in the firm 6 15%

Provides a clear structure of promotion in the firm. 6 15%

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Total 40 100%


The findings from table 10, 45% of the respondents said that sound management enables quick
and timely preparation of the financial statements. 25% said that sound management facilitates
quick and timely decision making yet 15% of the respondents said that sound management leads
to reduced levels of rivalry in the firm yet 15% of the respondents forwarded the fact that sound
management provides a clear structure of promotion in the firm.

4.3.4 Table 12: Whether the management of the institution has authority to implement
vital changes.
Yes 32 80%
No 6 15%
Not sure 2 5%
Total 40 100%

The findings from table 12 of the study show that 80% of the respondents agreed to the fact that
the management of the company has the authority to implement vital changes in the company yet
15% of the respondents said no to this fact however, 5% of the respondents were not sure of the
response to the question.

4.4.0 Establishing the other factors for the performance of the microfinance institutions.

This section tries to explore the other factors that affect the performance of the microfinance
institutions other than the sound management of the institutions. These factors have been
analyzed and tabulated below.

4.4.1 Table 13: Which of the following factors affect the performance of microfinance
institutions
Factors affecting performance Frequency Percentage

Level of motivation of the employees 8 20%

The regulatory framework of the sector 6 15%

33

The level of competition in the sector 6 15%

The products offered by the microfinance 20 50%
institution to its clients.

Total 40 100%


The findings from the study show that 20% of the respondents said that the level of motivation of
the employees, 15% of them said that the regulatory framework of the sector affects the
performance of the institution yet 15% of the respondents said that the performance of the
microfinance institutions depends on the level of competition in the sector however 50% of the
respondents attributed the performance of the microfinance institutions to the range of the
products offered by the microfinance institutions to the clients.

4.4.2 Table 14: How these factors have affected the performance of microfinance
institution.
How the factors affect performance Frequency Percentage

Many products offered by the MFI allows customers variety 10 25%
thus having more clients and increased profitability

The spread out of the MFI allows them to tap from the 16 40%
several clients.

The level of technology used in the microfinance affects the 8 20%
time of service delivery.

Too much competition in the sector reduces profitability of 6 15%
the MFI
Total 40 100%

34


The findings from the tale show that 25% of the respondents said that many products offered by
the MFI allows customers variety thus having more clients and increased profitability, 40% of
the respondents said the spread out of the MFIs allows them to tap from several clients thus
increment in the profitability yet 20% of the respondents said that the level of technology used in
the microfinance affects the time of service delivery yet 15% of the respondents said that too
much competition in the sector reduces profitability of the MFI.

4.4.3 Table 15: Do you think these factors play the pivotal role on performance of
microfinance institutions or it’s the management style of the institution that plays
the pivotal role?
Factor playing the pivotal role Frequency Percentage

The other factors other than management style. 16 40%

The management style plays a pivotal role as 20 50%
it’s the pillar for every activity.

Not sure 4 10%

Total 40 100%


The findings from table 15 show that 40% of the respondent said that the other factor other than

35

the management style of the microfinance institution affect its performance yet 50% of the
respondents said that the management style plays a pivotal role as it’s the pillar for every activity
in the institution yet 10% of the respondents were not sure of the response to the assertion.

4.5.0 How the performance of the microfinance institutions can be improved through
sound management.
Having discovered the fact that sound management of microfinance institutions is vital to their
performance, the researcher tried to explore ways of improving the performance of the
microfinance institutions through having sound management in the organization and the findings
from the respondents have been tabulated below:

4.5.1 Table 16: whether the performance of the microfinance institutions can be
improved.

Yes 30 75%

No 6 15%

Not sure 4 10%

Total 40 100%


On whether the performance of the microfinance institutions can the findings from table 16 show
that 75% of the respondents agreed to the fact that the performance of the institution can be
improved, 15% of the respondents said no yet 10% of the respondents were not sure on whether
the performance of the microfinance institutions can be improved or not.

36

4.5.2 Table 17: Showing what should be done about management so as to improve
What should be done Frequency Percentage

Encourage everybody’s participation in decision making. 18 45%

Put in place mechanisms to improve innovation. 5 13%

Treating every employee as a valuable resource to the 6 15%
microfinance.

Put in place several management controls to check on the 8 20%
performance of both management and employees.

Encourage timely preparation and audit of financial 3 7%
statements.

Total 40 100%


The findings from table 17 show that the 45% of the respondents said that the institution should
encourage everybody’s participation in decision making so as to allow them appreciate the
decisions taken, 13% said that institutions should put in place mechanisms to improve
innovation, 15% of the respondents said that the management should treat every employee as a
valuable resource to the microfinance yet 20% of the respondents said that the institutions should
put in place several management controls to check on the performance of both management and
employees while 7% of the respondents said that to improve performance the organization
should encourage timely preparation and audit of financial statements.

4.5.3 Table 18: Findings about what should be done to ensure sound management in the
microfinance institutions.
What should be done Frequency Percentage

Ensure appointment of managers with integrity. 15 37.5%

Setting of policies to encourage collective administration. 6 15%

Empower the audit commit to report on the management 4 10%
policies and there adequacy.

37

The management of the company should adhere to the 15 37.5
effective corporate governance guidelines of BoU.

Total 40 100%


The findings from table 18 show that 37.5% 0f the respondents say that the companies should
ensure appointment of managers of integrity, 15% of them said that the company should set
policies in place to encourage collective participation for better performance yet 10%of the
respondents said that the company should empower the audit commit to report on the
management policies and there adequacy and 37.5 of the respondents said that the microfinance
institutions should adhere to the effective corporate governance guidelines provided by Bank of
Uganda.

In conclusion therefore, the findings from the study show that the management of the
microfinance institution has a significant impact of the performance of the institution and needs
to be well monitored together with other factors so as to encourage better performance in the
entity.

38

CHAPTER FIVE

SUMMARY OF FINDINGS, DISCUSSIONS AND CONCLUSION

5.0 Introduction

This chapter presents the summary of findings, discussions, conclusions and recommendations in
line with findings presented in the chapter four of this research report.

5.1 Summary of the study findings;
The researcher was focused on investigating the relationship between sound management and the
performance of the microfinance institutions and in order to effectively carry this out, the
researcher was guided by the following objectives.

To investigate the management styles used by microfinance institutions and on this the
researcher found out that the microfinance institutions use management styles such as
management by wandering around yet over 45% of the respondents said that the institutions use
the value leverage system to manage yet the autocratic system and the persuasive and
consultative styles of management.

To examine the impact of sound management on performance and on this the researcher found
out that management of the microfinance institutions is the pillar of the performance of the
institution as it aids quick decision making, timely preparation of the financial statement and
timely and quick decision making.

39

To establish the other factors for the performance of the microfinance institutions and on this the
researcher found out that factors such as the spread out of the microfinance institutions and the
technology and the competition in the industry as many competitors reduce the performance of
the entity and adherence to the corporate governace guidelines provided by the microfinance
institutions.

5.2 Discussion of the findings of the study;
The findings from the study were discussed basing on what existed in the field and relating it
with what other individuals and researchers had established in the earlier studies and also what
the individuals had to say about the study.

The researcher found out that 55% of the respondents were female yet 45% were male implying
that majority of the employees of the institution were female yet majority of them were between
the ages of 25 to 35 years of age and this is the period when one has started enjoying his/ her
career and the members selected from general departments were the majority to give unbiased
information needed.

On the objective of finding out the management styles used by pride microfinance limited, the
researcher established that the organization uses different styles depending on the objective of
the management and these style included, autocratic, management by wandering around whereby
the managers keeping moving around to see what the employees are doing, and this was found
out to be the most used, the other style was value leverage where employees are encouraged to
create value in everything they do, persuasive and consultative styles and the democratic styles
as emphasized by Kamwana (2011) who said that the different styles of management affect
performance of organizations but they need to be used concurrently to improve performance.

On the objective of examining the impact of sound management on the performance of the
microfinance institutions, the researcher found out that sound management as proposed by the
Micro Finance Capacity Building Framework (UCAP) (2011) enables quick and timely
preparation of financial statements and also encourages quick decision making for better

40

performance. Yet Kamwana (2011) argues that sound management helps reduce on the rivalry in
the institution and also provides clear structure for promotion in the organization. It was found
out that the company’s management has the ability to influence significant changes in the
organization and that it was everybody’s objective to make sure that sound management is
encouraged in the institution.

On determining the other factors for the performance of the microfinance institutions, the
researcher found out other factors such as the level of motivation of the employees, the
regulatory framework of the sector, the level of competition in the sector and the products
offered by the microfinance institutions as some of the other factors that affect its performance
and products such as foreign exchange, price protection and safety of vital documents. This was
also discussed by Walday (2010) who also argued that the different products provided by the
MFIs to their clients have a significant impact on the performance of the institution as it affects
the number of clients of the institution. Kamwana (2011) further suggested that the different
factors such as inflation and the level of economic stability affects the performance of the sector
and further impacts on its profitability. He however suggested that the organisation’s should
ensure appointment of employees of integrity to ensure sound management and also encourage
employee involvement in the decision making process.

5.3 Conclusions from the study;
In conclusion therefore, the researcher found out that sound management is the pillar of
organizational performance as all the other factors rely on it to continue in the institution and this
was in a way the management style impacts on the foundation of the performance of the
microfinance institution.

The researcher also found out that the performance of the institutions is also affected by other
factors as sound management does not work in a vacuum but in the presence of other factors
such as the spread out of the institution, the technology and the level of supervision in the sector.

5.4 Recommendations from the study

Having carried out the study in the field and successfully completing the findings, the researcher
came up with the following recommendations to help solve the research problem.

41

SOUND MANAGEMENT AND PERFORMANCE OF MICROFINANCE INSTITUTIONS

SOUND MANAGEMENT AND PERFORMANCE OF MICROFINANCE INSTITUTIONS

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