Capital structure and performance of microfinance institutions in Mbarara District: a case study of Finca MDI

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Kampala International University.College of Economics and Management
The purpose of the study was to investigate the relationship between capital structure and performance of Microfinance institutions in Mbarara district. The study was guided by three specific objectives and these included i) to examine the relationship between capital structure and perfonnance of microfinance institutions in Mbarara district, ii) to determine the components of capital structure and perfonnance of Finca Microfinance and iii) to examine the effect of capital structure, cost of capital and loan covenants on of Microfinance institutions in Mbarara distJict. The study employed cross-sectional survey design since it is a case study of FIN CA MDI. This study adopted both qualitative and quantitative approaches in its methodology and a sample size of I 65 respondents was used. The study findings revealed that the correlation coefficient between correlation between capital structure and perfonnance of microfinance is positive that is 0.935 which means that an increase in capital structure also leads to an increase in pe1formance of microfinance and a decrease in perfonnance of microfinance also leads to a decrease in customer structure. , majority of the respondents reported Profitability as the leading component of financial structure with 29%, 19% of the respondents agrees that Net Profit Margin is the best component, 9% repmted Net Profit Margin, 21% repmted Return on Investment and Return on Equity and 25% insist that Liqnidity is the strategy that brings performance of Finca MDI.the study recommended that Microfinance institutions in Mbarara should avoid an over reliance on debt financing alternatively, Microfinance institutions that pursue a high debt policy compared to the industry average should seriously consider increasing the equity component in their capital structure in order to avoid the negative effects of excessive debt on performance. This can be by way of private placements which are a form of raising capital without necessarily over borrowing from financial institutions. Bank or financial institutions need to regularly visit and try to understand the operations of Microfinance institutions better thereby nurturing long lasting relations which wonld eventually result into customer loyalty. On the aspect of interest rates, it is recommended that Financial Institutions should consider a further lowering of their base lending rates and overall interest charged to Microfinance institutions in order to reduce on non perfonning loans and improve on the financial performance of Microfinance institutions.
Research report submitted to the College of Economics and Management Sciences in partial fulfillment of the requirements for the award of a bachelor's degree in Business Administration of Kampala International University
Capital, Structure, Performance, Microfinance, Institutions, Mbarara