Internal Control System And Financial Performance Of Microfinance Institutios In Central Region -Uganda

Abstract

Microfinance has evolved by providing micro credits to respond to the furthermost financial and non-financial needs of the citizens, to eradicate poverty and increase financial inclusion. Most studies undertaken in the past few years have focused mainly on outreach of MFI’s and their impact on profitability and not on internal control system and lack of clarity on the extent to which internal control system influences financial performance (Narver, 2007) will therefore continue to inhibit common understanding and explanation which might deter performance improvement in Ugandan microfinance institutions. Failure by MFIs to monitor portfolio quality closely and take action when necessary and this has threatened the going concern of microfinance industry in Uganda. The study analyzed the relationship between internal control system and financial performance of MFIs in central region Uganda and it was hypothesized that internal control system positively influences   financial performance of MFIs in central region Uganda. MFIs have come under spotlight for cases of poor financial performance. Lack of empirical studies to assess the impact of internal control system on the financial performance of   microfinance institutions in Uganda is the motivation behind this study. Therefore, this study is important not only because it fills the gap, but also it set out to address this evident knowledge gap. The study adopted positive-phenomenological, epistemology and quantitative-qualitative methodology dimension with cross sectional and correlation designs, the unit of analysis was Microfinance Institutions registered with Association of Microfinance Institutions, and employees were the units of inquiry. Structural Equations Modeling with Analysis of Moment Structures were used to for statistical modeling