INTERNAL CONTROLS AND FINANCIAL PERFORMANCE IN MICROFINANCE INSTITUTIONS IN UGANDA.
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Date
2025-07-28
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Uganda Christian University
Abstract
This study investigates the relationship between internal controls and financial performance of microfinance institutions in Uganda a case of Tujijenge Financial Services Ltd. The study was guided by specific objectives which was to examine the effect of control environment on financial performance of microfinance institutions, to examine the effect of risk assessment on financial performance of microfinance institutions, to investigate the effect of monitoring activities on financial performance of microfinance institutions and to examine the effect of communication on financial performance of microfinance institutions specifically Tujijenge Financial Services Ltd. The researcher employed across sectional survey design to explore information from different stakeholders in selected microfinance institutions at a given point of time. A sample size of 100 respondents was considered for the study, selected by simple random sampling and purposive sampling techniques. Data was collected through primary sources using structured questionnaires and interviews. Findings revealed that there is a strong relationship between internal controls and financial performance, as provided by (r = .703; sig. <.05). This suggests that variations in internal control systems are associated to variations in financial performance. The study also established positive and significant relationships between risk management and financial performance (r = .627; sig. <.05), control activities and financial performance (r = .604; sig. <.05), control environment and financial performance (r = .557; sig. <.05), and monitoring controls and financial performance (r = .595; sig. <.05). The study shows that variations in all the dimensions of internal control are strongly associated to variations in financial performance. This shows that while each of the components of IC affected financial performance differently with a dominant influence evident in risk management, and least in control environment. The four components worked together and were complementary in realization of desired financial performance. Microfinance institutions like Tujijenge Financial Services Ltd need to be keen in adhering to each of these IC components, holistically. Basing on these results, the researcher concludes that microfinance institutions that have strong internal control systems are likely to register strong financial performance. In real sense, if TFS focuses on enriching its ICs, the potentials of realizing positive financial performance scores, and meeting set targets, which was not the case by study time is possible. In addition to this, other factors having a strong bearing on the financial performance of Microfinance institutions should be explored by future research.