ASSESSMENT OF LOAN DEFAULT ON OPERATIONAL PERFORMANCE OF MICROFINANCE (CASE OF PEACE MICROFINANCE SHARE COMPANY)

Abstract

Microfinance institutions are found among the institutions which provide different financial service for the poor who are out of the conventional banking system particularly in developing countries. The objective of the study was to assess loan default on the operational performance of MFIs in the Case of PEACE Microfinance Share Company it aimed to explore the impact of loan default on the operational performance of the institution(MFIs) specifically focusing on the case of PEACE Microfinance S.C. The study employed a mixed methods research design, incorporating both quantitative and qualitative data collection technique. The primary data is obtained through a survey questionnaire administered to the staff member of PEACE Microfinance S.C and MF’s loan officers. The secondary data, on the other hand, is collected from published reports, articles, and other relevant documents related to the topic. The study’s findings indicate that loan default significantly affects the operational performance the institution, including financial sustainability, growth, and outreach. Employee’s morale and institutional reputation. The study identifies several factors that contribute to loan default, including borrower’s characteristics, poor portfolio management, poor credit appraisal, internal factors, credit risk, management polies, among other based on the research findings, the paper provides recommendations to improve the operational performance of MFI’s, including enhancing the credit risk management polies borrower education and financial literacy, and adopting new technologies to streamline their lending processes and enhance their ability to detect and prevent loan default. Additionally, the study identifies the challenges faced by the institution in managing credit risk and suggests possible solutions.