Risk Management and the Performance of Microfinance Institutions Case Study: Pearl Microfinance

Abstract

The main purpose of the study was to analyze the impact of risk management on the performance of microfinance institutions using a case study; pearl microfinance. The study was guided by the following objectives: To identify the effect of credit risk in the performance of microfinance institutions, to investigate the impact of liquidity risk in the performance of microfinance institutions and to establish the effect of operational risk in the performance of microfinance institutions. The study was carried on using a detailed literature review thereby analyzing what various authors have written about the topic. This was done by looking into different books.

Data was collected using various tools like a self administered questionnaire, interviews to mention but a few. The study was conducted using 50 respondents among the staff, and employees in Pearl Microfinance. The results from the findings indicated that majority of the respondents were females in the institution and were in the age group between 31–50 who were married. The results indicated that, the institution faces problem of lack skilled human power that facilitate the day-to-day activities of the institution and that the performance of the institution is weak in efficient and effective internal credit quality review, liquidity risk makes the institution unable to meet commitments and repayments at the correct time and place and that operation risks affect microfinance institutions earnings due to failures in computer systems, errors, among others. Finally, a number of recommendations were suggested such as institutions should develop an independent department that is in charge for risk management, and that financial institutions should adopt more Advanced technology so as to regulated the risks to enable they say regulate the inconsistencies between the loan management system data and the accounting

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