CHAPTER FOUR
PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS
4.0 Introduction.
This chapter presents the findings and interpretation of research study in accordance with study questions and objectives.
The objectives under study were: To examine the effect of client appraisal techniques on financial performance of micro finance support Centre ltd. Mbale Branch,
To examine the effect of credit risk control tools on financial performance in micro finance support Centre ltd. Mbale Branch and to examine effect collection policies on financial performance in micro finance support Centre ltd. Mbale Branch.
The study used both descriptive and regression analysis approaches and these findings were got from both primary and secondary sources and the questionnaires, interviews and document review were used to reinforce the existing knowledge in the literature reviews.
To test the hypothesis relating to this objective, a number of approaches to data analysis were used. These included descriptive statistics, Pearson product moment of correlation, Regression analysis and analysis of Variance (ANOVA).
4.1 Response Rate
The study presented the response rate to indicate whether the returned questionnaire was sufficient enough for analysis.
Table 4.1. Showing response rate.
The result in Table 4.1 shows the response rate of the questionnaires.
| Questionnaires administered | Questionnaires filled and returned | Percentage | |
| Respondents | 52 | 52 | 100% |
Source: Primary Data 2021.
Fifty-two questionnaires were issued and all the questionnaires were filled and returned. The fifty-two therefore represent 100% response rate. The response rate is considered adequate given the recommendations by Arora and Arora (2003) who consent that a response rate of 75% is adequate and Mugenda and Mugenda (2003) who advise on response rates exceeding 50%.
4.2 Background Information of the respondents.
The study analyzed background information of the respondents relying on a number of variables including; gender, age category, working period, marital status of the respondents with and highest level of education of the respondents. The findings gathered are presented as follows:
4.2.1 Gender of the Respondents
This subsection presents findings of the gender of respondents in terms of male and female. Data on this variable was collected, analyzed and is presented in table 4.2 below;
Table 4.2. Showing gender of the respondents.
The results in Table 4.2 show the responses distributed according to gender of employees.
| Frequency | Percent | Valid Percent | Cumulative Percent | ||
| Valid | Male | 25 | 51.9 | 48.1 | 48.1 |
| Female | 27 | 48.1 | 51.9 | 100.0 | |
| Total | 52 | 100.0 | 100.0 |
Source: Primary data 2021
From the table 4.2, 51.9% of the respondents were female and 48.1% were female. This clearly shows that majority of the respondents were male with up to 27 of them compared to the 25 males who were involved in the study. This is a clear indication that majority of the employees at MSC are male. This implies that perhaps since MSC work involves a lot of Primary work to check on clients, more males are employed than female counter parts. However, the difference is not very big to question gender balance. This also may imply that the data was obtained from different sex therefore balanced views that may properly advice on how to improve on the financial performance.
This subsection considered the age of the respondents in terms of age brackets. Data on this variable was collected, analyzed and is presented in table 4.3 below;
Table 4.3. Showing Age of the respondents.
The results in Table 4.2 show the responses distributed according to age of employees.
| Frequency | Percent | Valid Percent | Cumulative Percent | ||
| Valid | 18-25 Years | 9 | 17.3 | 17.3 | 17.3 |
| 25-30 Years | 28 | 53.8 | 53.8 | 71.1 | |
| 30-40 Years | 14 | 26.9 | 26.9 | 98 | |
| 40-50 Years | 1 | 1.9 | 1.9 | 100.0 | |
| Total | 52 | 100.0 | 100.0 |
Source: Primary data 2021
From the table 4.3, it shows that 28(53.8%) of the respondents were between 25-30 years, 14(26.9%) were aged between 30-40 years, 9(17.3%) were between 18-25 years and 1(1.9%) were aged between 18-25 year. The analysis shows that majority of the respondents are between ages 25-30 years, this implies that this age group produce quality work and this age group are considered to be mature enough in handling clients and handling organization resources responsibly. The finding also indicates that respondents who are majorly MSC members are young, and enthusiastic about improving the financial abilities of the organization.
4.4 Marital status of the respondents
This section took into consideration the marital status of the respondents and the data collected was presented and analyzed in the table below.
Table 4.4. Showing marital status of the respondents.
The results in Table 4.4 show the responses distributed according to marital status of employee
| Frequency | Percent | Valid Percent | Cumulative Percent | ||
| Valid | Married | 19 | 36.5 | 36.5 | 36.5 |
| Single | 17 | 32.6 | 32.6 | 68.1 | |
| Divorced | 7 | 13.5 | 13.5 | 81.6 | |
| Engaged | 9 | 17.3 | 17.3 | 100.0 | |
| Total | 52 | 100.0 | 100.0 |
Source: Primary data 2021
Findings from table 4.4 reveals that majority of the responds 36.5% were married, 34.6% were single, and 17.3% of the respondents were engaged and 13.5% of the respondents were divorced. The findings imply that majority of the respondents were married and hence it means that information was got from responsible people who do work with faith.
4.5. Level of Education
This subsection considered level of education of the of respondents in terms of secondary, certificate, Diploma, Bachelor’s Degree, Master’s Degree and others. Data on this variable was collected, analyzed and is presented in table 4.5 below;
Table 4.5. Showing level of education of the respondents.
The results in Table 4.5 show the responses distributed according to education levels of employees.
| Frequency | Percent | Valid Percent | Cumulative Percent | ||
| Valid | Secondary | 5 | 9.6 | 9.6 | 9.6 |
| Certificate | 12 | 23.1 | 23.1 | 32.7 | |
| Diploma | 7 | 13.5 | 13.5 | 36.2 | |
| Bachelor’s Degree | 19 | 36.5 | 36.5 | 82.7 | |
| Master’s Degree | 9 | 17.3 | 17.3 | 100.0 | |
| Total | 52 | 100.0 | 100.0 |
Source: Primary data 2021
From the analysis 36.5% are Degree holders, 23.1% certificate, 13.5% Diploma level, 17.3% were Master’s Degree holders, 13.5% and 9.6% are of secondary school certificates. Majority 36.5% were degree holders and this shows that the employee’s education level can be used in planning and making decisions and hence produce quality work for improvement of financial performance. Hence quality information obtained from the right people.
4.6. Work experience of the respondents
This subsection considered working period of the respondents with MSC, Mbale branch. Data on this variable was collected, analyzed and is presented in table 4.6 below;
Table 4.6. Showing Experience of the respondents.
The results in Table 4.6 show the responses distributed according to the working experience of employees.
| Frequency | Percent | Valid Percent | Cumulative Percent | ||
| Valid | Less than 1 year | 10 | 19.2 | 19.2 | 19.2 |
| 1-5 years | 23 | 44.2 | 44.2 | 63.4 | |
| 6-10 years | 17 | 32.7 | 32.7 | 96.1 | |
| More than 10 years | 2 | 3.8 | 3.8 | 100.0 | |
| Total | 52 | 100.0 | 100.0 |
Source: Primary data 2021
From the findings a majority of 44.2% of the respondents have worked with MSC for a period between 1 to 5 years, 32.7% have worked with MSC for a period between 6-10 years, 19.2% of the respondents had worked in MSC for a period less than 1 year and 3.8% of the respondents had worked there for more than 10 years.
Therefore, based on the findings above, majority of respondents have worked for a period of 1-5 years. This means that they had acquired enough experience and a great understanding of the organization’s policies, procedures and experience with the kind of work at hand and thus able to achieve targets comfortably and without challenges. It can also imply that the responses were of great value and reality since they were given by experienced members with enough knowledge about the credit management and financial performance.
4.3 Descriptive statistics on credit management and financial performance.
The study determined the frequencies, percentages, mean and standard deviation of the responses on client appraisal techniques, credit risk control tools, and collection.
4.3. Client appraisal techniques and financial performance in MSC
The first objective of the study was to examine the effect of client appraisal techniques on the financial performance of MSC. The data was analyzed as below;
Table 4.7: There are client appraisal techniques in this organization
| Frequency | Percent | Valid Percent | Cumulative Percent | ||
| Valid | Strongly agree | 42 | 80.8 | 80.8 | 80.8 |
| Agree | 6 | 11.5 | 11.5 | 92.3 | |
| Not sure | 2 | 3.8 | 3.8 | 96.1 | |
| Disagree | 2 | 3.8 | 3.8 | 100.0 | |
| Total | 52 | 100.0 | 100.0 |
Source: Primary data 2021
On finding out whether there are appraisal techniques in MSC, majority of the respondents 42(80.8%) strongly agreed, 6(11.5%) of the responds agree with the statement ‘there are appraisal techniques,’ 2(3.8%) of the respondents were not sure about the statement and 2(3.8%) of the respondents disagreed with the statement. The findings show that majority of the responds agree that there are appraisal techniques in MSC, Mbale branch. This implies that when appraisal techniques are emphasized, they help the organization to weigh their clients, this is very important in ensuring that the loans are recovered back in time which affects the financial performance of the organization. Sheilah (2011) is of the view that proper and adequate loan appraisal is the key to controlling or managing the level of income interests hence return on assets as well as return on equity therefore positively influencing on financial performance.
Table 4.8: There is a competent staff for carrying out client appraisal.
| Frequency | Percent | Valid Percent | Cumulative Percent | ||
| Valid
| Strongly agree | 10 | 19.2 | 19.2 | 19.2 |
| Agree | 34 | 65.4 | 65.4 | 84.6 | |
| Not sure | 3 | 5.8 | 5.8 | 90.4 | |
| Disagree | 2 | 3.8 | 3.8 | 94.2 | |
| Strongly disagree | 3 | 5.8 | 5.8 | 100.0 | |
| Total | 52 | 100.0 | 100.0 |
Source: Primary data 2021
On finding out whether there is a competent staff to carry out client appraisal, 34(65.4%)) agree and 10(19.2%) also strongly agree that there are competent staff to carry out client appraisal, 3(5.8%) were not sure, 3(5.8%) of the respondents strongly disagree and 2(3.8%) of the respondents disagreed. This means that majority of the respondents agree that there are competent staff to carry out client appraisal in MSC. This therefore, implies that having a competent staff in place plays a great role in improving financial performance in an organization because such staff will ensure that all collections are got in time and can be in position to correctly evaluate the clients and issue correct repayment schedules which is important in addressing the issue of deteriorating financial performance in the organization. One of the respondents had to say, ‘all our staff are highly qualified and understand what they do.
Table 4.9: This organization offer credit to customers
| Frequency | Percent | Valid Percent | Cumulative Percent | ||
| Valid | Strongly agree | 10 | 19.2 | 19.2 | 19.2 |
| Agree | 24 | 46.2 | 46.2 | 65.2 | |
| Not sure | 8 | 15.4 | 15.4 | 80.8 | |
| Disagree | 10 | 19.2 | 19.2 | 100.0 | |
| Total | 52 | 100.0 | 100.0 |
Source: Primary data (2021)
With reference to the table above findings indicate that majority of the respondents 34(65.4%) of the respondents strongly agree and agree with the statement ‘Does your organization offer credit to customers,’ 10(19.2%) of the respondents disagree and 8(15.4%) were not sure about the statement. The means that majority of the respondents were in agreement with the statement that this organization offers credit to customers. This forms the basis for the survival of the organization and it is its life-blood as this helps in generating the necessary income which boosts its financial performance.
Documentary findings show that most clients at MSC had received loans. Indeed, an interview respondent said
“It takes two to three days to process and receive a loan depending on how often the loans committee sits and number of loan requests/application, availability of funds and the signatories”.
This shows that the MSC offers loans to its clients.
Table 4.10: Client appraisal take note of collateral.
| Frequency | Percent | Valid Percent | Cumulative Percent | ||
| Valid | Strongly agree | 12 | 23.1 | 23.1 | 23.1 |
| Agree | 21 | 40.4 | 40.4 | 63.5 | |
| Not sure | 6 | 11.5 | 11.5 | 75 | |
| Disagree | 12 | 23.1 | 23.1 | 98.1 | |
| Strongly disagree | 1 | 1.9 | 1.9 | 100.0 | |
| Total | 52 | 100.0 | 100.0 |
Source: Primary data (2021)
Results from the table reveal that 21(40.4%) and 12(23.1%) of the respondents strongly agree and agree with the statement ‘Client appraisal takes note of collateral,’12(23.1%) and 1(1.9%) of the respondents disagree and strongly disagree with the statement respectively, while 6(11.5%) of the respondents were not sure about the statement. The means that majority of the respondents were in total agreement with the statement ‘Client appraisal take note of collateral.’ This is the most important item in credit management, in case of failure to pay, the collateral is used to cover up the default monies and so this helps the organization to maintain its inflow of cash and boosts its financial performance. This is in line with Inkumbi (2009) who notes that capital (equity contributions) and collateral (the security required by lenders) as major stumbling blocks for entrepreneurs trying to access capital is more important before credit is granted. This is especially true for young entrepreneurs or entrepreneurs with no money to invest as equity; or with no assets, they can offer as security for a loan.
Table 4.11: Failure to assess customer’s capacity to repay results in loan defaults
| Frequency | Percent | Valid Percent | Cumulative Percent | ||
| Valid | Strongly agree | 10 | 19.2 | 19.2 | 19.2 |
| Agree | 23 | 44.2 | 44.2 | 63.4 | |
| Not sure | 9 | 17.3 | 17.3 | 80.7 | |
| Disagree | 9 | 17.3 | 17.3 | 98 | |
| Strongly disagree | 1 | 1.9 | 1.9 | 100.0 | |
| Total | 52 | 100.0 | 100.0 |
Source: Primary data (2021)
On finding out whether failure to assess customer’s capacity to repay results in loan defaults, 23(44.2%) of the respondents agree with the statement, 10(19.2%) of the respondents strongly disagree, 9(17.3%) and 1(1.9%) of the respondents both disagree and strongly disagree with the while 9(17.3%) of the respondents were not sure. This means that majority of the respondents were in agreement with the statement that failure to assess customer’s capacity to repay results in loan defaults. This failure to assess customers’ capacity to pay possess a big threat as in most cases such customers disappear with the money and this leaves the organization with a gap in its finances and hence the financial performance is negatively affected.
In line with the findings, one of the interviewees asserted that ‘it is true whenever we do not assess our customers’ capacity to, it has always resulted into many of our clients to pay back the loans we give to them, this is also because some of our clients lie to us about what they own.’
Table 4.12: All clients are appraised before credit is granted to them
| Frequency | Percent | Valid Percent | Cumulative Percent | ||
| Valid | Strongly agree | 13 | 25.0 | 25.0 | 25.0 |
| Agree | 18 | 34.6 | 34.6 | 59.6 | |
| Not sure | 13 | 25.0 | 25.0 | 84.6 | |
| Disagree | 7 | 13.5 | 13.5 | 98.1 | |
| Strongly disagree | 1 | 1.9 | 1.9 | 100.0 | |
| Total | 52 | 100.0 | 100.0 |
Source: Primary data (2021)
Results from the table above reveal that majority of the respondents 18(34.6%) agree with the statement that all clients are appraised before credit is granted to them, 13(25.0%) strongly agree, 7(13.5%) disagree and 1(1.9%) of the respondents strongly disagree with the statement while 13(25.0%) were not sure. The findings imply that majority of the respondents were in agreement with the statement all clients are appraised before credit is granted to them. Proper appraisal helps to minimize the default rate among the customers and hence boosts the financial performance of the organization. This is in line with Nagarajan (2011) who asserts that the time taken to appraise the bank’s clients is very important in order to identify the return on deposits. This influences the bank’s financial performance. This reflects the bank management’s ability to utilize the customer’s deposits in order to generate profits.
One of the interviewees said ‘ In fact it is our usual routine here that all our clients are first appraises before we grant them credit and this has helped us to identify those who have the capacity to repay back the loans from those who are not capable.’
Table 4.13: Client appraisal techniques improve the quality of customers in this organization
| Frequency | Percent | Valid Percent | Cumulative Percent | ||
| Valid | Strongly agree | 8 | 15.4 | 15.4 | 15.4 |
| Agree | 23 | 44.2 | 44.2 | 59.6 | |
| Not sure | 1 | 1.9 | 1.9 | 61.5 | |
| Disagree | 13 | 25.0 | 25.0 | 86.5 | |
| Strongly disagree | 7 | 13.7 | 13.7 | 100.0 | |
| Total | 52 | 100.0 | 100.0 |
Source: Primary data (2021)
Results from the table reveal that majority of the respondents 23(44.2%) agree with the statement that client appraisal techniques improve the quality of customers in this organization, 8(15.4%) of the respondents strongly agree, 13(25.0%) disagree and 7(13.5%) strongly disagree with the statement while 1(1.9%) were not sure. The findings indicate that majority of the respondents were in agreement with the statement that client appraisal techniques improve the quality of customers in this organization. These techniques help the organization to get to know the clients who have enough collateral security to pledge against the loan they are to take and in fact the chances of the organization losing money are further minimized.
Source: Primary data (2021)
The results show that client appraisal techniques significantly contribute to financial performance. The correlation between them is r= 0.323, with p=0.003. Therefore, if the organization gives more consideration to client appraisal techniques in line with the objectives of the organization, then financial performance will be improved.
Table 4.15: Effect of Client appraisal and financial performance
| Model Summary | ||||
| Model | R | R Square | Adjusted R Square | Std. Error of the Estimate |
| 1 | .855a | .730 | .727 | .55905 |
| a. Predictors: (Constant), Client appraisal techniques | ||||
Source: Primary Data (2021)
The model summary in table 4.15 above using predictor client appraisal techniques reveals that adjusted R Square value is 0.727. This implies that 72.7% (0.727 *100) variations financial performance is explained by Client appraisal techniques while the remaining 27.3% is explained by other factors.
Hypothesis I
There is a strong positive and significant effect of client appraisal techniques on financial performance.’
Table 4.16: Variation in Client appraisal and financial performance
| ANOVAa | ||||||
| Model | Sum of Squares | Df | Mean Square | F | Sig. | |
| 1 | Regression | 64.303 | 1 | 64.303 | 205.744 | .000b |
| Residual | 23.753 | 50 | .313 | |||
| Total | 88.055 | 51 | ||||
| a. Dependent Variable: Financial performance | ||||||
| b. Predictors: (Constant), Client appraisal techniques | ||||||
Source: Primary Data (2021)
The study used ANOVA statistical technique to analyze data. The study had the level of significance at α=0.000. It can be deduced from the regression that Client appraisal techniques are of significance to financial performance at, F=205.744 (0.000b). Since significance calculated 0.000bis less than 0.05, the study therefore accepts the first hypothesis which stated that ‘There is a strong positive and significant effect of client appraisal techniques on financial performance.’
4.4: Effect of Credit Risk Control and financial performance in MSC.
Source: Primary data 2021
Results from the table above reveal that majority of the respondents 32(61.5%) strongly agree and agree with the statement ‘imposing loan size limits is a viable strategy in credit management,’ 10(19.2%) of the respondents strongly disagree and disagree with the statement while 10(19.2%) of the respondents were not sure. This means that majority of the respondents were in agreement with the statement ‘imposing loan size limits is a viable strategy in credit management. The loan size limits help in determining the loan amount which a customer can be offered, this helps in reducing on the risk of default as this may result into a decline in financial performance and therefore, loan limits help in improving on financial performance by offering clients the loans that they can be in position to repay back.
Indeed one of the interviewees said ‘these limits help our clients to take the loans that they are in position to pay and also leave for them room to make a profit in their businesses and as an organization we also benefit because we shall be receiving our monies in time which has help to beef up our financial performance.’
Source: Primary data (2021)
On finding out whether the use of credit checks on regular basis enhances credit management, 4(7.7%) and 32(61.5%) majority of the respondents strongly agree and agree with the statement. 4(.7%) and 1(1.9%) of the respondents disagree and strongly disagree respectively while 11(21.2%) were not sure. This means that majority of the respondents were in agreement with the statement ‘the use of credit checks on regular basis enhances credit management.’ Such credit checks help to track the performance of the loans issued out to the clients and through this, the organization can easily track those clients who are not performing well via repayment of their loans as this can adversely affect the financial performance of the organization as it cuts on the inflow of incomes.
One of the interviewee had to say ‘ we talk track of all our clients in the system on a daily basis and this helps us to those loans that are performing well and those that are not performing well to avoid bring losses in the organization.’
Source: Primary data (2021)
Findings from the table reveal that 20(38.5%) of the respondents strongly agree with the statement ‘flexible repayment period improve loan repayment,’ 14(26.9%) of the respondents agree with the statement, 5(9.6%) and 3(5.8%) of the respondents disagree and strongly disagree respectively while 10(19.2%) were not sure. The findings indicate that majority of the respondents were in agreement with the statement that flexible repayment period improve loan repayment. When customers are given a flexible repayment period to pay back their loan, this allows them to properly plan and they will be in position to pay back the organization its money and as a result, the organization will not lose their money and this will help to improve on recoveries and hence their financial performance will be boosted as compared to when the customers are given strict deadlines.
‘We allow our customers to repay back the loans in flexible terms and this has improved on the performance of our loans and also boosted and brought in new clients in our organization’
Source: Primary data (2021)
On finding out whether penalty for late payment enhances customers commitment to loan repayment, 17(32.7%) majority of the respondents agree and 10(19.2%) strongly agree with the statement, 9(17.3%) and 0(0.0%) of the respondents both disagree and strongly disagree while 16(30.8%) of the respondents were not sure. The findings imply that majority of the respondents concur with the statement that penalty for late payment enhances customers commitment to loan repayment. The late repayment penalty sets the pace and hard work among the clients and because of the fear and need to avoid the penalty, they remit their installments in time and this leaves the organisation with enough money to carry on its planned activities and thereby boosting its financial performance.
One of the interviewees had to say that ‘the late penalty has indeed worked for us because most of our clients fear to pay it and so they pay back in time and this has increased our performance financially.’
Source: Primary data (2021)
Findings from the table show that majority of the respondents 14(26.9%) and 10(19.2%) both agree and strongly agree with the statement ‘the use of customer credit application forms improves monitoring and credit management as well,’ 13(25.0%) and 3(5.8%) of the respondents disagree and strongly disagree with the statement respectively while 12(23.1%) were not sure about the statement. This means that majority of the respondents were in agreement with the statement ‘the use of customer credit application forms improves monitoring and credit management as well,’
One of the interviewees said. ‘In this organization all our clients fill application forms before they access credit and these forms help us to get their consent in regard to our terms and conditions and these have helped us to keep track of our clients’
Source: Primary data (2021)
Findings from the table above reveal that majority of the responds 18(34.6%) agree with the statement ‘Credit committee’s involvement in making decisions regarding loans are essential in reducing default/credit risk,’12(23.1%) of the respondents strongly disagree, 10(19.2%) disagree and 5(9.6%) strongly disagree with the statement while 7(13.5%) were not sure. The findings indicate that majority of the respondents were in agreement with the statement ‘credit committee’s involvement in making decisions regarding loans are essential in reducing default/credit risk.’ Such Credit committees are essential in assessing risks and finding ways of reducing them and by doing so, the rate of default is also minimized to greater levels and this benefits the organization positively.
Source: Primary data 2021
On finding out whether interest rates charged affect performance of loans, 21(40.4%) majority of the respondents agree, 6(11.5%) strongly agree with the statement, 8(15.4%) of the respondents disagree with the statement and 1(1.9%) of the respondents strongly disagree while 16(30.8%) were not sure about the statement. This implies that majority of the respondents were in agreement with the statement ‘interest rates charged affect performance of loans.’ The interest rates charged on loans tend to discourage clients from borrowing and as a result, the organization end up having redundant funds which may affect the financial performance negatively.
Source: Primary data 2021
Results from table above revealed that there is a positive significant relationship between credit risk control tools and financial performance. This is based on the obtained correlation coefficient of .326 (**) with a significance value of .003. This explains that in a situation where the credit risk control tools are properly assessed, then financial performance will be effectively achieved.
Table 4.25 Effect of credit risk control tools on financial performance
| Model Summary | ||||
| Model | R | R Square | Adjusted R Square | Std. Error of the Estimate |
| 1 | .887a | .787 | .784 | .49710 |
| a. Predictors: (Constant), Credit risk control tools | ||||
Source: Primary Data (2021)
The model summary in table 4.25 above using predictor credit risk control reveals that adjusted R Square value is 0.784. This implies that 78.4% (0.784 *100) variations in financial performance is explained by credit risk while the remaining 21.6% is explained by other factors.
Hypothesis II
There is a positive significant relationship between credit risk control tools and financial performance
Table 4.26: Variation in credit control tools on financial performance
| ANOVAa | ||||||
| Model | Sum of Squares | Df | Mean Square | F | Sig. | |
| 1 | Regression | 69.275 | 1 | 69.275 | 280.345 | .000b |
| Residual | 18.780 | 50 | .247 | |||
| Total | 88.055 | 51 | ||||
| a. Dependent Variable: Financial performance | ||||||
| b. Predictors: (Constant), Credit risk control tools | ||||||
Source: Primary Data (2021)
The study used ANOVA statistical technique to analyze data. The study had the level of significance at α=0.000. It can be deduced from the regression that credit risk control tools are of significance to financial performance at, F=280.345 (0.000b). Since significance calculated 0.000bis less than 0.05, the study therefore the study accepts the second hypothesis which stated that “There is a positive and significant relationship between credit risk control tools and financial performance.”
4.5. Collection policy and financial performance in MSC
Table 4.27: Available collection policies have assisted towards effective credit management.
| Frequency | Percent | Valid Percent | Cumulative Percent | ||
| Valid | Strongly agree | 22 | 42.3 | 42.3 | 42.3 |
| Agree | 21 | 40.4 | 40.4 | 82.7 | |
| Not sure | 2 | 3.8 | 3.8 | 86.5 | |
| Disagree | 7 | 13.5 | 13.5 | 100.0 | |
| Total | 52 | 100.0 | 100.0 |
Source: Primary data 2021
On finding out whether available collection policies have assisted towards effective credit management, 43(82.7.3%) majority of the respondents strongly agree and agree with the statement, 7(13.5%) of the respondents disagree with the statement and 2(3.8%) of the respondents were not sure. The findings imply that majority of the respondents were in agreement with the statement ‘available collection policies have assisted towards effective credit management,’ This implies that such policies help in giving direction on how loans are to be disbursed and so this calls for care to be taken.
Our policies at the moment are indeed working for us because they have enabled us to make all our collections from our clients timely and this has improved the profitability of this organization because at least we have enough money to lend out to all our clients.
Source: Primary data 2021
Results from the table above reveal that majority of the respondents 26(50.0%) and 12(23.1%) both agree and strongly agree with the statement ‘Formulation of collection policies have been a challenge in credit management,’ 8(15.4%) and 3(5.8%) of the respondents both disagree and strongly disagree with the statement, 3(5.8%) of the respondents were not sure about the statement. The findings indicate that majority of the respondents were in agreement with the statement Formulation of collection policies have been a challenge in credit management.’ This possess a big threat to the financial performance of the organization because when the policies are insufficient, it will create reluctance in the organization and the financial performance will be affected.
Source: Primary data (2021)
Findings from the table above show that 18(34.6%) majority of the respondents strongly agree with the statement ‘Enforcement of guarantee policies provides chances for loan recovery in case of loan defaults,’14(26.9%) of the respondents agree with the statement, 11(21.2%) of the respondents were not sure about the statement, 8(15.4%) disagree with the statement and 1(1.9%) strongly disagree with the statement. The findings imply that majority of the respondents were in agreement with the statement that enforcement of guarantee policies provides chances for loan recovery in case of loan defaults,’
Source: Primary data (2021)
Findings from the table above reveal that majority of the respondents 17(32.7%) agree with the statement ‘the credit collection policy has improved the debtor’s turnover,’ 13(25.0%) of the respondents strongly agree with the statement, 10(19.2%) and 5(9.6%) of the respondents disagree and strongly disagree with the statement respectively, 7(13.5%) of the respondents were not sure about the statement. The findings indicate that majority of the respondents were in agreement with the statement ‘the credit collection policy has improved the debtor’s turnover.’
One of the interviewees said, ‘our credit collection policy has indeed improved our debtor’s turnover and we are actually doing extremely well in this very area
Source: Primary data (2021)
On finding out whether regular reviews have been done on collection policies to improve sate of credit management, majority of the respondents 17(32.7%) and 11(21.2%) both agree and strongly agree with the statement. 8(15.4%) and 6(11.5%) of the respondents both disagree and strongly disagree with the statement and 10(19.2%) of the respondents were not sure about the statement. The findings imply that majority of the respondents were in agreement with the statement ‘regular reviews have been done on collection policies to improve sate of credit management,’ regular review of policies help to review those which are inadequate and bring in those that can help the organization do better, by doing so, the organization will help the organization to improve on its financial performance.
One of the interviewees had to say, ‘we review our policies whenever we feel those in existence are not working for the organization and help it achieve its objectives, this has help this organization to improve on its financial performance.’
Source: Primary data (2021)
Results from the table reveal that majority of the respondents 15(28.8%) strongly agree with the statement that a stringent policy is more effective in debt recovery than a lenient policy, 12(23.1%) agree with the statement, 10(19.2%) of the respondents disagree with the statement, 8(15.4%) of the respondents strongly agree with the statement and 7(13.5%) of the respondents were not sure about the statement. The findings imply that majority of the respondents were in agreement with the statement ‘a stringent policy is more effective in debt recovery than a lenient policy.’ This is important as a stringent policy will increase on the collection of monies which are out inform of loans to be collected back in time and this affects the organization’s liquidity position positively.
In an interview with one of the respondents, ‘here at MSC we have very stringent debt recovery policy and in fact it has worked for us and most of our clients are comfort with it and they indeed remit all the money they owe us on time.’
Findings in the table above revealed that there is a positive significant relationship between collection policy and financial performance in MSC. This is based on the obtained correlation coefficient of .298 (**) with a significance value of .002. This explains that in a situation where credit policies are effectively followed, then financial performance will effectively take place.
Table 4.34: Effect of collection policy on financial performance
| Model Summary | ||||
| Model | R | R Square | Adjusted R Square | Std. Error of the Estimate |
| 1 | .877a | .769 | .766 | .51777 |
| a. Predictors: (Constant), Collection policy | ||||
Source: Primary Data (2021)
The model summary in table 4.16 above using predictor Collection policy reveals that adjusted R Square value is 0.766. This implies that 76.6% (0.766 *100) variations in financial performance at MSC is explained by Collection policy while the remaining 23.4% is explained by other factors.
Hypothesis III
Therefore, accepts the third hypothesis which stated that there is a positive and significant effect of collection policy on financial performance.
Table 4.35: Variation in collection policy on financial performance
| ANOVAa | ||||||
| Model | Sum of Squares | Df | Mean Square | F | Sig. | |
| 1 | Regression | 67.680 | 1 | 67.680 | 252.454 | .000b |
| Residual | 20.375 | 50 | .268 | |||
| Total | 88.055 | 51 | ||||
| a. Dependent Variable: financial performance | ||||||
| b. Predictors: (Constant), Collection policy | ||||||
Source: Primary Data (2021)
The study used ANOVA statistical technique to analyze data. The study had the level of significance at α=0.000. It can be deduced from the regression that Collection policy isof significance to financial performance at, F=252.454 (0.000b). Since significance calculated 0.000bis less than 0.05, the study therefore accepts the third hypothesis which stated that there is a positive and significant effect of collection policy on financial performance.
Table 4.36: Effect of credit management on financial performance
| Model Summary | ||||
| Model | R | R Square | Adjusted R Square | Std. Error of the Estimate |
| 1 | .904a | .816 | .809 | .46737 |
| a. Predictors: (Constant), Appraisal techniques, risk control tools, credit policy | ||||
Source: Primary Data (2021)
The model summary in table 4.36 above using predictor appraisal techniques, risk control tools and collection policy reveals that adjusted R Square value is 0.809. This implies that 80.9% (0.809 *100) variations in financial performance is explained by appraisal techniques, risk control tools and credit policy while the remaining 19.1% is explained by other factors
|
Coefficients | ||||||
| Model | Unstandardized Coefficients | Standardized Coefficients | t | Sig. | ||
| B | Std. Error | Beta | ||||
| 1 | (Constant) | .464 | .163 | 2.845 | .006 | |
| Appraisal techniques | .497 | .123 | .497 | 4.026 | .000 | |
| Risk control tools | .326 | .170 | .319 | 1.915 | .059 | |
| Collection policy | .109 | .148 | .112 | .739 | .462 | |
| a. Dependent Variable: Financial performance Source: Primary Data (2021) | ||||||
The study used coefficients (beta values) and statistical technique to analyze data. This helped to determine the extent and direction of the effect of appraisal techniques, risk control tools and credit policy on financial performance and how they impact on it. The study showed that appraisal techniques, risk control tools and collection policy have beta values of 0.497, 0.329 and 0.112. It can be deduced from the regression that at 1% increase in appraisal techniques, risk control tools and credit policy, financial performance is increased by 0.497, 0.329 and 0.112 respectively and at 100% increase in appraisal techniques, risk control tools and credit policy; financial performance is likely also to increase by 49.7%, 32.9% and 11.2%. Therefore, the management of MSC should emphasize appraisal techniques, risk control tools and credit policy to improve financial performance.
Conclusion
This study determined the effect of credit management and financial performance. This research used a sample of 52 respondents. These were sampled using both purposive and simple random sampling methods. The mode of data collection was drop and later pick mode after prior appointment with the respondent, interview guide was also used.
