Credit Management Practices on Loan Performance among Selected Microfinance Institutions in Rwanda
Alice Ugirimbabazi & Tarus Thomas
School of Graduate Studies, University of Kigali
Email: mbabazalice2009@gmail.com
Abstract: This study examined the effect of credit management practices on loan performance among 19 selected microfinance institutions (MFIs) in Rwanda from 2015 to 2024, focusing on Capital Adequacy Ratio (CAR), Liquidity Ratio (LR), Loan Loss Provision Ratio (LLPR), and Loan Portfolio at Risk (LPAR). A descriptive longitudinal research design was adopted using panel data from 190 firm-year observations obtained from audited financial statements and regulatory reports. Data were analyzed using descriptive statistics, Pearson correlation, and panel multiple regression. Diagnostic tests confirmed normality, absence of multicollinearity, heteroscedasticity, endogeneity, and stationarity problems, while the Hausman test supported the Fixed Effects Model. The regression model was statistically significant (F = 30.130, p < 0.001) and explained 39.4% of the variation in loan performance (R² = 0.394). CAR had a significant negative effect on loan performance (β = -0.134, p = 0.040), whereas LR had a significant positive effect and was the strongest predictor (β = 0.508, p = 0.003). LLPR (β = 0.055, p = 0.736) and LPAR (β = 0.119, p = 0.142) had positive but statistically insignificant effects. The findings indicate that liquidity management and capital adequacy are the key determinants of loan performance in Rwandan MFIs. The study recommends strengthening liquidity management, maintaining optimal capital adequacy, enhancing prudential supervision, improving credit appraisal and loan monitoring, and investing in automated credit risk technologies.
