The effectiveness of financial risk management on loan performance of small-scale enterprises: a case study chigook microfinance; South Sudan
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Date
2026-04-28
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Uganda Christian University
Abstract
This study assessed the effect of financial risk management on the performance of loans t small-scale enterprises by Chigook Microfinance in South Sudan. This study was inspired by the rising number of loan defaults and irregular repayment ratios that are prevalent among borrowers, questioning the efficiency of the risk management strategies implemented by microfinance institutions. This study applied a descriptive cross-sectional research design that involved the use of both quantitative and qualitative methods of data collection. Data were gathered from a sample population of 100 respondents comprising of small-scale enterprise borrowers, loan officers, and risk management personnel. Seventy-eight valid responses were received through the use of structured questionnaires and interviews. From the findings, it was observed that there are well-developed risk management practices within the microfinance institution especially in terms of credit assessment, loan monitoring, management of collaterals, and liquidity management. Majority of the participants agreed that there is an evaluation of the ability to pay back, examination of the accounting records, and consideration of the credit history before lending any money. However, there have been some shortcomings especially in assessing the value of the collaterals and delayed lending process due to liquidity problems. As far as the performance of the loans is concerned, it was observed that 77% of the borrowers pay back the money on time while 26% have once defaulted. The correlation coefficient shows a reasonably strong positive relationship between financial risk management practices and loan performance. This research has proven that good financial risk management practices play an important role in determining how well loans perform within microfinance organizations. This includes improving credit appraisal practices, better liquidity management, and efficient operations through proper staff training and technology use. All these steps are necessary to reduce loan losses and ensure the sustainability of microfinance organizations, especially during economic instability periods like those experienced in South Sudan.
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Undergraduate