Abstract:
This study examines the relationship between credit terms, clientele characteristics, credit risk assessment, and financial performance at FINCA Uganda, a microfinance institution (MFI). The research objectives include establishing the connection between credit terms and financial performance, assessing the relationship between credit terms, credit risk assessment, and financial performance, examining the relationship between clientele characteristics, credit risk assessment, and financial performance, and determining the factor structure of credit terms, clientele factors, and credit risk assessment on financial performance.The study employed a sample of 83 respondents from FINCA Uganda, achieving a response rate of 97%. The findings indicate that the bank has a well-defined framework for credit terms, with affordable lending interest rates, suitable repayment periods, and effective collateral for debt recovery. However, lending rates and collateral affect the borrowing capacity of clients.Statistical analysis, including Pearson's correlation coefficient and regression analysis, reveals a positive and significant relationship between credit terms and financial performance (r = 0.591**, p < 0.01). Risk identification contributes significantly (0.417) to the financial performance at FINCA Uganda. Similarly, the study finds a positive and significant relationship between credit risk assessment and financial performance (r = 0.486**, p < 0.01), with risk assessment contributing 0.219 to financial performance. Regarding credit risk management, the bank has an established framework, competent personnel, and effective credit management mechanisms, which positively affect financial performance (r = 0.405**, p < 0.01), with risk mitigation contributing 0.221.Based on the study's conclusions, credit terms, clientele characteristics, and credit risk management are all positively associated with financial performance. Credit terms have the highest contribution, followed by credit risk assessment and clientele characteristics. The study recommends enhancing staff capacity in objective risk identification, analyzing associated risks in credit terms, exploring borrowers' capacity to pay, and implementing appropriate collateral and insurance policies. This research suggests that MFIs in Uganda should focus on interest rate risk assessment and internal control systems' impact on financial performance for further investigation
