MJAAR

Risk Mitigation Strategies and Liquidity of Microfinance Institutions: A Case Study of Pride Microfinance Institution

Mbabazi Doreen, Irumba Alex


Abstract

This study examined the relationship between risk mitigation strategies and liquidity management outcomes at PRIDE Microfinance Institution Uganda Limited-one of Uganda's oldest, most geographically extensive, and most operationally diversified microfinance deposit-taking institutions, serving over 160,000 active clients across 30 branches spanning all regions of the country. Liquidity management in microfinance institutions occupied a distinctive and critically important position relative to commercial banking, reflecting the particular vulnerability of MFIs to simultaneous credit risk events driven by the common exposure of client portfolios to weather events, commodity price shocks, and epidemic diseases that correlated loan delinquency across borrowers and to funding structure mismatches, in which short-term deposit liabilities and loan portfolio draw-downs collided with loan portfolio illiquidity in ways that could precipitate MFI operational crises even for institutions with sound long-run solvency. Drawing on a cross-sectional survey of 268 respondents comprising PRIDE management, loan officers, credit committee members, depositors, the Uganda Microfinance Regulatory Authority (UMRA) supervisors, and development finance partners, supplemented by four-year financial analysis (2019–2022), this study employed descriptive statistics, hierarchy-of-controls risk mitigation adoption analysis, bivariate Pearson correlation analysis, chi-square tests, and multilevel mixed-effects logistic regression to examine the determinants of liquidity ratio adequacy and the risk mitigation strategies most consequential for liquidity outcomes. The findings demonstrated that credit risk management quality (β = 0.574, p < .001), liquidity reserve adequacy (β = 0.541, p < .001), and loan portfolio diversification (β = 0.487, p < .001) were the strongest independent predictors of liquidity ratio adequacy, while institutional factors including UMRA regulatory compliance quality (OR = 5.84, p < .001), management financial literacy (OR = 5.12, p < .001), and digital financial management system adoption (OR = 4.41, p < .001) were significant structural predictors. The study benchmarks these findings against Asiimwe et al. (2026), establishing that digital financial management systems mediated risk mitigation strategy effectiveness in the same complementary relationship that digital infrastructure mediated teacher competence effects on CBE readiness, and called for strengthened portfolio diversification, mandatory liquidity buffer requirements, digital system investment, and client financial literacy as the priority interventions for improving MFI liquidity resilience in Uganda.

Keywords

Risk Mitigation Strategies Liquidity Microfinance and Institutions
Metropolitan Journal of Academic and Applied Research

Cite This Article

Mbabazi Doreen & Irumba Alex (2026). Risk Mitigation Strategies and Liquidity of Microfinance Institutions: A Case Study of Pride Microfinance Institution. Metropolitan Journal of Academic and Applied Research, 5(9). https://journals.miu.ac.ug/pages/article.php?article_id=1879

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