MJAMR

Financial Risk Management And Sustainability Of MFIS In Uganda: A Case Of Jinja Municipal Council

Alex Irumba, Dr Ariyo Gracious Kazaara


Abstract

This study examined the relationship between financial risk management practices and the financial sustainability of Microfinance Institutions (MFIs) in Jinja Municipal Council, Uganda. The research aimed to assess the financial risk management practices employed by MFIs, evaluate the impact of these practices on financial sustainability, and identify key financial risks such as credit risk, liquidity risk, and operational risk. Data was collected from a sample of MFIs in the region, with multiple linear regression analysis used to assess the relationships between financial risk management practices and financial outcomes. The regression results revealed that credit risk management (B = 0.478, p = 0.000) and liquidity risk management (B = 0.323, p = 0.006) had significant positive relationships with the financial performance of MFIs, while operational risk management showed a marginal effect (B = 0.201, p = 0.096). Further, strategic financial planning (B = 0.350, p = 0.007) significantly impacted the financial sustainability of MFIs, highlighting the importance of long-term planning. In terms of financial risks, credit risk (B = -0.460, p = 0.000) and liquidity risk (B = -0.350, p = 0.001) negatively impacted the financial health of MFIs, with market risk (B = -0.290, p = 0.016) also being significant. However, operational risk did not show a statistically significant impact on financial health (B = -0.200, p = 0.126). The findings of the study indicate that effective credit and liquidity risk management are crucial for maintaining the financial stability and sustainability of MFIs. Strategic financial planning also plays a key role in mitigating the impact of financial risks and ensuring the long-term viability of MFIs in Jinja Municipal Council. Conclusions suggest that MFIs must prioritize effective financial risk management practices, particularly in credit and liquidity areas, to enhance their sustainability. The study further recommends that MFIs invest in staff training and capacity-building, develop stronger risk assessment tools, and adopt more diversified financial strategies. Additionally, policy adjustments should be made to support MFIs in managing financial risks, particularly in rural settings

Keywords

Financial Risk Management Microfinance Institutions Sustainability Credit Risk Liquidity Risk Strategic Financial Planning
Metropolitan Journal of Academic Multidisciplinary Research

Cite This Article

Alex Irumba & Dr Ariyo Gracious Kazaara (2024). Financial Risk Management And Sustainability Of MFIS In Uganda: A Case Of Jinja Municipal Council. Metropolitan Journal of Academic Multidisciplinary Research, 3(12). https://journals.miu.ac.ug/pages/article.php?article_id=1190

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