Financial Sustainability in Micro Finance Institutions in Central Uganda

International Journal of Research and Innovation in Social Science (IJRISS) | Volume III, Issue VI, June 2019 | ISSN 2454–6186

Financial Sustainability in Micro Finance Institutions in Central Uganda

Ssendagi Muhamad¹ PhD, Mabonga Eric² PhD

¹Department of Finance, Kigali Independent University, Rwanda
²Department of Accounting, Kigali, Independent University, Rwanda

Abstract -The purpose of the study was to establish the level of financial sustainability of Microfinance institutions in Central Uganda. We employed descriptive survey design with a sample of 287 obtained statistically from the population. The study found that there is high level of financial sustainability among the Microfinance institutions considered for the study. The study found several factors at institutional level threaten the level of financial sustainability. If microfinance institutions do not change and improve the way they do their business soon or later some of them will be out of business.

Key words: financial sustainability, profitability, operating efficiency, financial self sufficiency, financial efficiency

I. INTRODUCTION

As the microfinance industry has evolved and rapidly expanded both globally and in Uganda, questions regarding sustainability have come to the fore. For example, [12] and [6] ask whether microfinance can meet the full promise of reducing poverty without ongoing subsidies. They also noted that high repayment rates recorded by MFIs cannot be translated easily into profitability. [4] Questions whether MFIs are any different from past holder rural and co-operative finance of the 1960s and 1970s, suggesting that they may not be sustainable without either substantial donor subsidies or a shift toward less poor clients.
The closure of banks and bank branches as well as the drive for prudent operations and efficiency of the banking industry gave microfinance institutions the chance to fill the gap and expand rapidly from the mid-1990s onwards. The microfinance industry in Uganda was a natural offshoot of the general dynamics of the country’s economy, which left rural and other low income people lacking financial services in the last three decades. The economic breakdown of the late 1970s and 1980s caused many banks to close upcountry branches and community based financial institutions like SACCOs also closed down. Attempts to reverse this through massive branch opening by the then UCB in the 1980s was not successful as many of the branches made perpetual losses and were closed down.

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