Effect of Loan Repayment on Financial Performance of SACCOs in Rwanda A Case of Umwalimu SACCO Head Office

Abstract

Consequently, Poor loan repayments have a negative effect on an institution's capital, earnings, and ability to achieve its goals, and they may even cause a financial institution to fail. For instance, poor loan repayment management results in losses and expensive delinquent management expenses. Such expenses have a negative impact on the income earned and, generally, the operations of the lending institution; as a result, the institution becomes financially unsustainable. The main objective of this study was to analyze the effect of loan repayment on financial performance of SACCOs in Rwanda and specific was to assess the effect of loan period on the financial performance of UMWALIMU SACCO for the period under study, to analyses the effect of loan follow-up policy on the financial performance of UMWALIMU SACCO for the period under study and to examine the effect of loan recovery policy on the financial performance of UMWALIMU SACCO for the period under study. Descriptive research design was used for this study, while Regression analysis was also employed. It provides empirical evidence suggesting two or more variables are or are not related and the researcher use a sample of 33 employees of UMWALIMU SACCO, therefore: financial performance of UMWALIMU SACCO main Branch = 16.631+ .361 loan period + .712 follow up policy +.584 loan recovery policy. At 5% level of significance all three variables which are Loan Period, Loan Follow-up Policy, and Loan Recovery Policy were positively and statistically significance since their p-values was below the acceptable threshold of 0.05. From the research findings, positive effect was found on three the variable i.e. is Loan Period, Loan Follow-up Policy, and Loan Recovery Policy with regression coefficients of 0.361, 0.712 and 0.584 respectively. These findings suggest that a unit increase in loan period, taking all the other variables constant at zero would result to a 0.361 increase in financial performance in UMWALIMU SACCO. Similarly, a unit increase in loan follow up policy would result to 0.712 increases in financial performance of UMWALIMU SACCO. A unit increase in loan recovery policy would result to 0.584 increases in financial performance of UMWALIMU SACCO main branch. Therefore, this study recommends that credit officers and credit committees should go beyond customer character before approving loans but assess other factors such as job security and the amount borrowed by the prospect.