Abstract:
The study sought to investigate the effect of credit risk on profitability of microfinances
institutions (MFIs) in Ghana. using ROA as a measure of profitability, a panel data for a
period from 2011 to 2020 on five MFIs operating in Ghana were selected. The 10-year
panel data of the five MFIs were analysed using ordinary least square model (OLS).
The study found that firm-specific factors which are firm size, ROA and interest rates in
loans and macroeconomic factors thus GDP and inflation are statistically significant in
determining credit risk. The study concludes that capital adequacy ratio (CAR),
management quality and liquidity have negative effect on financial performance but
non-performing loans (NPLs) has negative effect on profitability of the MFIs. It was
recommended among others that MFIs in Ghana should develop reliable credit
management strategy to reduce the rate of incidence of non-performing loans. The use
of credit bureaus in this regard can be particularly useful in reducing information
asymmetry during loan administration. To complement this, strict measures must be
adopted to evaluate borrowers‟ ability to pay loans.
Description:
A dissertation in the Department of Accounting, School of Business, submitted to the School of Graduate Studies, in partial fulfillment of the requirements for the award of the degree of Master of Business Administration (Accounting) in the University of Education, Winneba
NOVEMBER, 2021
