The effect of demographic characteristics on loan portfolio performance in microfinance institutions in Uganda :

Abstract

Over the years, most MFIs have experience to a varying degree problem of non-performing loans some of which have been closed down by regulatory authorities. This in turn led to contraction of activities, decline in output, and imposition of substantial costs on loans. This study sought to find out how demographic characteristics of borrowers affect loan portfolio performance of MFIs. The purpose of this study was to investigate the effects of age, gender and education on loan portfolio performance of MFIs in Uganda. A simple random sampling technique is used in selecting the registered and regulated financial institution in Uganda from the population of 35 as derived from Bank of Uganda report as at 30 June 2019. The use of simple random sampling in the selection of the sample for this study provided an equal chance or opportunity to each participant to be selected for the study. The study found out that age is a factor that determines the borrower’s preference or self-selection of either being a user or non-user in the credit market. Youthful borrowers are perceived as innovative and good performers, but risky portfolio and age differences have led to an increase in loan delinquencies. There is evidence that suggests women are more likely to repay collateral-free microloans than men. However, little is known about what explains such gender differences. The research has proven that since financial statements are a key requirement by formal credit institutions, borrowers with higher education level, accounting knowledge, better business management skills, are given an added advantage when it comes to credit borrowing. Therefore, it is significantly seen that age, gender and education have a positive effect on loan portfolio performance.