Financial innovation, credit risk management, management efficiency and financial performance of financial institutions in Kampala Capital City Authourity.

Abstract

This study examined the mediating role of financial innovation in the relationship between credit risk management, management efficiency and financial performance of financial institutions in Kampala Capital City Authority (KCCA). The study was conducted based on a cross-sectional design along with a quantitative research approach. A population of 34 financial institutions was selected. Data was collected from employees basically working in the loans department of the financial institutions using a structured questionnaire. Validity of the instrument was obtained using CVI while reliability using pretesting and Cronbach coefficient Alpha. SPPSS (V.20) was used to analyse data from frequency tables, correlation and regression results were obtained. The study revealed a positive and significant relationship between credit risk management, management efficiency and financial performance. The study further showed positive and significant relationship between credit risk management, management efficiency and financial innovation. Finally, the study found financial innovation as a significant mediator in the relationship between credit risk management and management efficiency on financial performance. By design, all the study hypotheses were directional and were supported. These findings contribute to understanding why credit risk management and management efficiency when mediated with financial innovation improves financial performance. The study recommends credit Risk Management practices, enhance management quality for example training and idea initiation as essential components for improved financial performance of financial institutions. Keywords: credit risk management, management efficiency, financial innovation, financial performance, central region.