Determinants of nonperforming loans of microfinance Companies in Ghana

Abstract

The study examined the determinants of non-performing loans of microfinance companies in Ghana. The qualitative approach was adopted for the study. Through the use of purposive sampling technique, 10loan officerswere selected to participate in the study. The structured interview guide was used to gather the requisite data for the study. The data were analyzed through the thematic approach based on the various themes according to the research questions that guided the study.The study among other things found out that non-performing loans were high around 2011 through to 2013, however, were less in 2010, 2014 and 2015. The year 2015 observed a massive decline indicating that the MFIs have taking proactive measures to help recover majority of their loans as mostly agree in the loan agreement. Also, the study found that external and internal factors such as poor management and economic downturns accounted for majority of non-performing loans in Ghana. Once more, there was a statistically significant negative effect of inflation on non-performing loans.However, no significant effect was observed by interest rate on non-performing loans.The study recommended that,NPL Management of MFIs should acquire the technical skills and managerial expertise needs to examine the trend and incidence of nonperforming loans so that critical measures can be taken in that effect. Also, government and other policy makers should help invest more in growth enhancing sectors of the economy so that government loans can be repaid on time to MFIs. Again, MFIs should consider international competitiveness in order to impact on abilities of borrowers to several exports and imports sectors of the economy so that they can repay loans.