Credit risk management practices in financial institutions: a case of Pride Microfinance Limited (PML), head office.

Abstract

The study examined the Credit Risk Management Practices of Financial Institutions in Uganda specifically focusing on Pride Microfinance Limited Head Office branch. The study objectives were to examine the different Credit Risk Management Practices used at Pride Microfinance Limited-Head Office, to establish the challenges faced while employing the different Credit Risk Management Practices at Pride Microfinance Limited-Head Office and to develop a strategic framework that will ease the management of Credit Risk at Pride Microfinance Limited-Head Office. A descriptive research design and quantitative approach was adopted. Primary data was collected from a sample of Pride Microfinance staff and active Pride microfinance customers borrowing at the branch. The study delved into the Credit Risk Management Practices of Pride Microfinance Limited, with a focus on the identification, measurement, monitoring, and mitigation of credit risks. The analysis reveals widespread agreement among respondents regarding the use of past repayment records, credit referencing, and regular review of customer accounts. Additionally, respondents generally acknowledge the Pride's practices in setting reserve levels, ascertaining Credit Value at Risk, and implementing collateral requirements. However some of the challenges faced while employing the different Credit Risk Management Practices at Pride Microfinance Limited-Head Office included difficulty in developing and maintaining effective credit scoring models, continuous monitoring of borrowers' creditworthiness is resource-intensive and that there is over reliance on technology which introduces the risk of system failures, cyber threats, and data breaches. From the study, the proposed strategic framework is a comprehensive and adaptive response to credit risk management challenges that bolsters data management practices to incorporating advanced analytics, contingency planning, and cybersecurity measures that generally aims at fortifying Pride Microfinance Limited's resilience and effectiveness in managing credit risk in a dynamic financial landscape. The study recommends targeted initiatives such as enhanced training, optimized resource allocation, and balanced technology integration that can lead to more effective credit risk assessment and informed decision-making, contributing to enhanced financial stability for Pride.