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LOAN MANAGEMENT ON THE SOCIO-

ECONOMIC DEVELOPMENT OF
BENEFICIARIES

Case study of Unguka Bank ltd Rubavu

branch(20142016 (2014-2016)

NZAYISENGA ADRIEN +250784296338

Email: Email:
nayisengadrianos@gmail.com nayisengadrianos@yahoo.com
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Figure 1: NZAYISENGA ADRIEN

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GENERAL INTRODUCTON

1. BACKGROUND AND SIGNIFICANCE OF THE STUDY

1.1. Background of the study

Most of financial institutions were created with one objective of

earning interest so as to maximize the shareholders wealth.
Loans are one of the major strategies which have been found to
be useful for financial institutions which wish to satisfy their
interest maximization and to achieve their objectives. Sustainable
growth is necessary condition in poverty reduction complain. The
government must mobilize both local and foreign investment to
contribute to this effort through the banks that play an
important role in economic development. In that case we choose
UNGUKA BANK as an example of bank that plays an important
role in economic development of Rwanda.

UNGUKA BANK Limited is microfinance bank, created on 30th

January 2005 as a microfinance institution, it is a society limited
by shares that resulted from a handshake of 214 shareholders
who started with capital of 321 100 000 Rfw represented by
3211 shares of 100 000 Rfw each one. Starting with only two
branches (Remera and Nyabugogo) and the head office at
Nyabugogo which shifted to Remera one year later in 2006 and in
center town in august 2011,it was authorized to operate on a
temporary basis on 4th August 2005.During the microfinance
crisis of June 2006 in Rwanda which resulted for bankruptcy of
9 big IMFs, UNGUKA Bank ltd was authorized to open two more
branches, Musanze and Rubavu in the northern and western
provinces respectively; and authorized to operate on definitive
basis. On 6th April 2011, the board of directors for the National
Bank of Rwanda issued a license of microfinance Bank. For now
the transformation from IMF-UNGUKA S.A in unguka Bank Ltd has
been a reality. (Unguka Bank Ltd., 2011
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In extending credits to people through the mobilization of

savings and financings the economic activities such as
agriculture, commerce, manufacturing and trade.

They normally play this role by accepting deposits from the

public and extend credits to the business, firms and individuals in
economy. It is therefore well know that finance is the back born
of all economic activities (ROSE, Karlon and Fraser, 1993: 1996).

Financial institutions of any given economy are crucial to the

development of that country. They have power to select who can
borrow by determines where growth can occur. Similarly.
Growth I the production sector will strengthen the financial
institutions .Well developed financial institutions matches’
capital varying risk endeavors. However a country with less
developed financial structure will likely restrict the access to
finance of economic activities for private investors, considered
to be risky.

1.2. Significance of study

The purpose of this research is to show the contribution of bank

in prompting private investment. The banks have great support to
government because the government of Rwanda has not the
sufficient money to lend the private sectors, plays the important
role in increasing the economic growth

1.2.1. Personal interest

This research is important o the researcher it facilitated to

improve the knowledge in domain of financial institution and
private investment. Also with this research we have been
motivated to know more about how loan managed by unguka bank
in Rubavu on socio economic development of beneficiaries.

1.2.2. Academic and scientific interest

According to ULK regulation every student is obliged to carry

out research at the end f his/her studies. The study will enable
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us to contribute academically to the development of scientific

research in Kigali independent university. A copy of this
dissertation remains the property of ULK library and it will be
used for documentation by those who will be interested in the
same domain in the future.

1.2.3. Social interest

Contribution of banks in promoting private investment reduces

poverty, and increase the employment rate. The private investors
contribute in economic development through the tax and
increase production in general.

2. SCOPE OF THE STUDY

This research is limited into space, time and domain t is because of

problem of financial means and time.

2.1 Space

The research has been conducted to UNGUKA BANK, Rubavu

branch.

2.2. Time

This research have taken the period between 2014-2016

2.3 Domain

This research was related in my domain especially in banking

3. Problem statement

After genocide against Tutsi in Rwanda in 1994 the evolution of

events was slowly, it must create conductive environment for
effective functioning of bank in Rwanda. Efforts to promote and
develop private investment are overweighed by series of
obstacles therefore; the constraints faced by bank at present in
Rwanda should be the basis of an appropriate policies and
defining the corresponding strategies for the development
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provide an essential starting point policies that encourage the

private investors.

In Rwanda, after national bank monitoring savings and loans

have been taken as one of development strategies aimed at
supporting majority of financial institutions to pave the way of
sustainability by distributing loans. Since lending is the main
business of financial institutions, this pushed the researcher to
assess the impact of loan management in socio economic
development of MFIs. Various MFIs at the time of their creation in
recent years. NBR closed some of them due their bankruptcy
(NBR, 2008:7-10). The financial sector’s weakness continues to
limit private investment sector development. The central bank
however is working to strengthen its banking supervision
department and developing a plan to enhance the quality of
credit information in order to avoid the problems associated with
asymmetry information between the client and the banks. The
bank will need to increase significantly their professional
capacity in accounts management and lending before they will
meet international banking standards. (NBR, 2003:67)

On 6th April 2011, the board of directors for the national bank
of Rwanda issued a license of microfinance bank. For now the
transformation from IMF-UNGUKA S.A in UNGUKA Bank ltd has
been a reality.

Therefore, the researcher studies and investigates how banks

contribute in economic development,

Based on the problem statement said above we have formulated

the following questions:

1. Are loans in UNGUKA BANK Rubavu branch managed

effectively?
2. Do UNGUKA BANK/Rubavu branch loans contribute to the
socio-economic development of beneficiaries?

4. HYPOTHESIS
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Every research must be guided by theoretical hypothesis which is

the anticipated provisional answers to the questions which
researcher was self asked which can be accepted or rejected or
modified regarding to the work carried out on the ground.

1. UNGUKA BANK/Rubavu branch loans are managed effectively

in Rubavu branch.
2. UNGUKA BANK/Rubavu branch loans contribute the socio-
economic development beneficiaries.
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5. OBJECTIVE OF THE STUDY

This study included both general and specific objectives

5.1General objectives

The general objective of this research is to analyze the impact of

loan management on the socio-economic development of
beneficiaries.

5.2 Specific objectives

- To analyze how UNGUKA BANK/Rubavu branch loans are

managed effectively.
- To verify if UNGUKA BANK loans contributes to the
improvement of standard living conditions to the clients.
- To advocate strategies that may help UNGUKA BANK
ltd/Rubavu branch to improve its loan management

6. Research methodology

6.1 Techniques

In scientific work research we needed in order to find the

necessary information on a topic chevalier (1978, 168).

Has sots techniques as’ tools of research involving the

collection procedure provided and appropriate to the subject of
investigation the analytical approach and especially the view
that guide the research (J. Chevalier, 1978, 168).

Books and other sources used in research may be classified as

primary and secondary. During this research both primary and
secondary sources of collecting data about the topic have been
used.

6.1.1 Observation technique

According to MULUMBAT (1980:2) <Observation is the most

important technique used by researchers to collect data.
Nothing can replace researcher’s direct contact with his or her
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domain and no other technique can enable a researcher in

gathering more deals than observation technique> this technique
of data collection brings the researcher in direct interaction
with people and their activities. During the researcher’s visit to
the field, the researcher used the direct type of observation. It
helped the researcher to become an observer, a participant and
record some information about the lives and problems of urban
area and learn about it’s to overcome a difficulty life.

6.1.2 Questionnaire technique

A questionnaire is a means of a relevant communication between

interview and the respondent. GRINNER (1990:228) defines
questionnaire as asset of written questions, which calls for
responses on the behalf of clients. The research used both
closed and open questions because they normally avail
appropriate and detailed information

6.2 Methods

6.2.1 Historic method

This method refers to the use of past information or data to give

the clear picture of the present. This type of method was
resorted to, in order to outline the evaluation of the facts on
the subject over the period of study.

6.2.2 Method of data analysis

The method is the of intellectual operations which enable to

analyze, to understand and to explain the analyzed reality or
else to structure the research

6.2.3 Quantitative method

Quantitative method refers to the systematic empirical

investigation of social phenomena via statistical, mathematical
or computalizational techniques (Marlec P 1983:523)
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This method allowed us to analyze and interpret data from our

sample and the use of this method allowed us to know and
demonstrate the actual figure. And those numbers have allowed
us to draw conclusion about the widespread general population
research.

7. ORGANIZATION OF THE STUDY

A part from the general introduction, conclusion and suggest,

this work will consist of three chapters.

Chapter one deals with theoretical and conceptual framework

where the researcher got opportunity to define the keyword.

Chapters two analyzing the effectiveness of loan management

at unguka bank are managed effectively.

Chapter three the contribution of UNGUKA BANK ltd/Rubavu

branch loans to the social and economic development of
beneficiaries. Finally our work has closed by general conclusion
and suggestion.
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CHAPTER 1: LITERATURE REVIEW

This chapter explains the key concepts related to the topic, in

order to facilitate the comprehension. This chapter presents the
relevant theories related to bank loans.

1.1. Definition of key concepts

It is important to clarify certain terms from the; beginning for

better comprehension of the content of our work, much as in
management sciences a concept or a notion might have different
meanings depending upon the context.

1.1.1. Credit / loans

The word credit/comes from the Latin word "credere" which

means to believe. The word credit is defined in different ways
depending on whether one takes the point of view of the debtor
or creditor.

To the debtor: the development of a savings not used for

investment clean and available for a period shorter or longer,
(Renard, 2001:38).

For the creditor: this is essentially a time saver. It is the

possibility of immediate power of a good whose cost is deferred
Th3 interest rate is then the cost of time saved.

The credit is a transaction whereby a lender (creditor) shall

immediately surrender any property or money in a borrower
(debtor) against the latter's commitment to perform at a
specified date, payment of the property or refund of the amount
loaned, with interest payable generally. (FOX, 2001:38). The
credit is generally defined as a holder of a trust of money or
quantity of goods up to a borrower or buyer client by giving
money or goods without immediate compensation, but rather a
deferred consideration in time for a fee calculated on the '
monetary value paid or advanced, the rate and the agreed date in
advance.
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1.1.2. Management

The authors (TERRY, and FRANKLIN, S. 1985: 12) define

management as a process consisting of specific activity of
planning, organizing, and impulse control to achieve the
objectives with the implementation of human resources and
other resources,

Management can also be seen as a rational approach by which

the human, physical and financial details to the goals pursued.
This translates into a process that involves planning,
organizing, coordinating, directing and controlling activities in
a way that optimum performance under a philosophy that
focuses on meeting the various beneficiaries involved.

1.1.3. Loan management

Loan management is common business requirement in today’s

competitive business age. Financial institutions that finance
customers for different requirement (home loan, vehicle loan,
business loan personal loan etc.) Can use management to
design a loan and manage day operation related to it.

1.1.3. Bank

A bank or a financial institution is an institution that provides

financial services for its clients or members. Probably the most
important financial service provided by financial institutions is
acting as financial intermediaries. Most financial institutions
are regulated by the government.

1.1.4. Development

Development is defined as when someone or something grows or

changes and becomes more advanced (Cambridge learners: 2003).

1.1.5. Beneficiaries

Is someone receiving money or advantages (Cambridge learners:

2003).
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1.1.6. Effectiveness

Effectiveness means achieving the results that you want by using

available resource. (Cambridge learners: 2003).

1.2. Types of loan

 Secured loan
 Unsecured loan
 Secured loan: is a loan in which the borrower pledged some
asset as collateral. A mortgage loan is very common type of
debt used by many individuals to purchase house. In this
arrangement the money is used to purchase the property.
The financial institutions however are given security a lien
on the title to the house until the mortgage is paid off in
full. If the borrower defaults on the loan, the bank would
have the legal right to repossess the house and sell it to
recover sums owing to it (signeriello, vicent, 1991)

In addition a loan taken out to purchase a new or used car may be

secured by the car, in much the same way as mortgage is secured
by housing. The duration of the loan period is considerably
shorter often corresponding to the useful life of the car. There
are two types of auto loans, direct and indirect. A direct auto
loan is where a bank gives the loan directly to a consumer. An
indirect auto loan is where a car dealership act as intermediary
between a bank or financial institutions and the consumer
(signeriello, Vincent j, 1991)

 Unsecured loan: Are monetary loans that are not secured

against the borrowers assets. These may be available from
financial institutions under many different guises or
marketing packages (signoriello, Vincent j, 1991):
 Bank overdraft
 Credit facilities
 Credit card debt
 Corporate bonds (may be secured or unsecured)
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 Personal loans

The interest rate applicable to these forms may vary depending

on the lender and borrower these may or may not be regulated
by law. Interest rate on secured loans is nearly always higher
than for secured loans because an unsecured lender option for
recourse against the borrower in the event of default are
severely limited. An unsecured lender must sue the borrower,
obtain money judgment for breach a contract and the per sue
execution of the judgment against the borrower’s unencumbered
asset (that is the one not already pledged to secured lenders) in
insolvency proceedings lenders when a court divides up
borrower’s asset. Thus a higher interest rate reflects the
additional risk that in event of insolvency, the debt may be
uncollectible (signoriello, Vincent, J, 1991)

1.2. Generalities on loans management

Credit management is a difficult burden to such an extent that it

is the main activity of the bank as from the house she realized
commercial profits. According PETET-DUTALLIS, distribute the
funds is a difficult job, is accused easily to what exercises to give
too much sometimes not enough to blame them also to be
overcharged but the banker is not a philanthropist and he
cannot catch up with prices for services rendered on that of a
commodity that would increase. (PETET-DUTALLIS: 1998, p: 16)
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Offer the credit, it is to some extent, accept the risks. Therefore,

the distribution of funds must follow certain rules, be subject
to certain controls in the process of granting and managing
credit, and there are two parties' involved, financial institution
and Bank or credit applicants.

1.2.1. Purpose of credit and its importance

The purpose of the credit can be a commodity, a commodity or

money, purchasing power which the owner has no immediate use
and it makes available to someone who needs. Credit is an
activity that provides both the needs of members and helping to
ensure the penetration of financial products essential to the
financial stability and viability of the institution. The ,'ole of
credit is to allow customers of banks or financial institutions
to meet their financing needs the credit provides better use of
capital is in the general population, it helps stimulate the
production is allocate capital available to those who need it in
terms of amounts and optimum time. (GARSUAULT PRIAMI.
1997:264).

1.2.2. Credit Policy

All financial institutions do not adopt the sane policy for

granting credit. Thus, each financial institution has its own
credit policy. In other words, each financial institution obeys
all the rules that influence the granting of credits.

Banks and other financial institutions must develop a

framework for managing credit risk, which provides a formal
set of policies and practice of control. These financial
institutions are strongly encouraged to adopt more rigorous
procedures to limit the risk of losses on their loans.
(GARSUAULT and PRIAMI.1997:268)

The bank or financial institution has established written

policies regarding credit management• Means were developed
to communicate quickly to all persons involved in the process of
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credit management, policies and practices governing the credit

risk.

The bank or financial institution adopts an assessment process.

Credit applications which allow examination. Repayment capacity
of the borrower, given the financial history. (GARSUAULT
PRIAMI. 1997:264).

1.23. Process of granting credit

The decision-making processes of granting credit is a long

process and requires a lot of things. The credit is not a gift; it
must be repaid. To ensure the payment of principal and interest
following steps must be crossed: first the constitution-making,
management and credit administration.

The bank must have an effective procedure for granting and

managing credit. To access the credit at the bank, there are
preliminary and more:

- The first prerequisite is that of being a regular customer of

this bank, the customer must present a pattern, or present a
profit', ole project, the client must have the guarantees required
by the bank. (BNR: 2008, p12).

1.2.4. The credit application process

To gain access to credit certain conditions must be met for the

establishment of credit:

- Being a member of the bank for 3 months be of good moral

character; Having a complete portfolio have a profitable
project; sufficient capacity to repay; provide collateral or
solidarity, which largely cover the requested loan;
- Not having a bad credit history.

The various components of the application of credit are:

- Applications that collect credit information on the customer's

identity, credit information requested, the amount, term,
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annuity, the client's resources and its jobs, its net income,
warranty information;
- Document the project to be financed: the investment plan of
the project for which the customer credit application;
- The pro forma invoice on items to buy;
- Balance sheets and operating statements that reflect the
assets and liabilities, revenues and expenses of any commercial
and / or family member's borrower. When all elements of the
case are available on application package credit is given to the
credit manager who makes his study. (BNR: 2008, p12).

1.2.5. Process of credit analysis

As soon as a credit analyst opens, a client file for the study, the
first thing he is interested is the account history. Its aim is simply
to check how, when and how he could repay the previous loans.
Course through his account he must be confident, to pay the
agreed time, making voluntary savings and properly honoring
contracts as a compromise. So, once its history is flawless, it is
ensured and we trust him for the next credit. Certainly we turn
to consider the case of credit application submitted. While all
the standards for obtaining the credit are not complete, the
granting of this credit is imperative. Otherwise, the client is not
benefiting anything.( C.A raja natarajan, 2012)
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4.5

3.5

3 Series 1
2.5 Series 2
2 Series 3

1.5

0.5

0
Category 1 Category 2 Category 3 Category 4

1.2.5.1. Analysis of credit demand

This analysis aims to examine the applicant’s financial solvency

and guiding the' decision of the analyst to give or refuse credit
to the customer. The factors to be analyzed are:

- The capital, assets, property or assets the borrowing member,

free of all encumbrances, mortgages or bonds, in determining
repayment ability;
- Guarantees: Guarantees are a secondary source of payment
that the member

Submits to the borrower of the bank including savings, a

contractual account, a house, a plot....

Cycle of the business or commercial activity: To have a clear

recovery of the borrower, it is necessary that the bank becomes
more familiar with the economic environment in which the member
is active and will be active. It must also contain any information
of economic productive; sectors where members operate to see if
there is a possibility of a recession in one sector or another.
VINCENT, F., (1978-32)

1.2.6 Role of Credit

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According Arnaud and Olivier Renault (2004:12). Economic

agents and businessmen need to anticipate future resources to
complete the transactions by borrowing money to close banks.

To this end, the credit contributed to the creation of wealth for

future capital funding, market or working capital. The credit
allows exchanges, stimulates the production, boosts
development and finally creates money. The credit performs
multiple functions including.

1.2.6.1. Exchange

This is probably the oldest its function, which was originally

Banking. The use of credit allows an anticipation of revenue and
thus gives advance purchasing power and exchange companies.
Anticipating sales revenue, it allows for continuity.

1.2.6.2. Production

The production credit allows companies to acquire the tools of

production adapted and increase the quality and quantity of
units produced. Consumer credit in turn, stimulates purchases
and consequently the production.

160 70

140 60

120
50
100 Volume
40 Open
80
High
30
60 Low

20 Close
40

20 10

0 0
1/5/2002 1/6/2002 1/7/2002 1/8/2002 1/9/2002
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1.2.6.3. Development

The effects of a loan for the purchase of a production or

consumption do not occur solely in the economic agent
beneficiary of the operation: they extend indirectly to other
agents. We talk about the multiplier effect of the credit.

1.2.6.4. Instrument of money creation

The importance of credit in the economy lies in its action on

trade, production, economic development and especially its
role as a tool for creating money. Indeed, banks in extending
credit create cash flow. They use their resources in deposits to
extend credit to their customers without, so far, it deprives
depositor's opportunities to use their deposit.

1.3. Generalities to bank

In this section we show the theories related to bank, means that

its Principal activities and the types of risks and risk
management of credit.

1.3.1. Principal activities

1.3.1.1. Pooling of saving

Commercial bank (Reed W. Eduard and Gill K. Edward, 1989:282)

performs every important service in reducing poverty by
providing facilities for the pooling of saving and making them
available for economically and socially desirable purposes. The
commercial banks receive deposits from the individuals who have
spare money with them.

The commercial banks pay the interest on the deposits in saving

accounts.

This interest is paid to encourage saving habits among individuals.

The commercial banks impose some restrictions to withdraw
money from saving accounts.
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This is beneficial to their customers since they are rewarded by

the payment of interest on their savings which are safe, and in a
highly liquid form. It is also contribution to the government
because these pooled funds are made available to businesses for
the expansion of their productive capacity hence increasing
government revenue from taxes.

1.3.1.2. Extensions of credit

The primary function of commercial banks is the extension of

credits worthy borrowers. In making credits available.
Commercial banks are rendering a great social through their
actions production increased, capital investment are expanded
and higher standard of living is realized which is beneficial to
poverty reduction.

1.3.1.3. Brokerage services

Many commercial banks provide brokerages services that is

buying and selling of securities for customers. The
authorization to provide these services was introduced in early
1983. So far many banks have expressed an interest in providing
such services. It is fairly evident that bank participation in the
brokerage business as expanded in the future.

1.3.1.4. Creating money

Commercial banks are able to create and destroy money, which

is accomplished by the leading and investing activities of
commercial banks in co-operation with the national monetary
administration.

This is of great economic significance because it results in the

credits system that is necessary for economic progress at a
relatively steady rate of growth. VINCENT, P. (1978:43).

1.3.1.5. Payment mechanism

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Providing for payments mechanism, or the transfer of funds, is

one of the contribution performed by Commercial banks the
system is increasing the importance as greater reliance is placed
on the use of checks and credits cards. Most of the checks from
various banks are created through the commercial banks system.
For instance, checks drawn one and deposited in the bank merely
transfer funds from an account to another. If only two banks
are involved in the same town, there is a direct exchange of
checks. When several banks are involved within the same city, a
clearinghouse arrangement is usually employed.

1.3.2 The types of risks of credit

Normally the risk is the uncertainty that surrounds future

events and results. It is the expression of the probability of an
event occurring and its potential impact on objectives. Risk
management is an integral part of any effective business
strategy. Credit risk is the express ion of the probability of
occurrence of losses at financial institutions in case of failure
by anyone to meet its obligations on the balance sheet or off
balance, toward her or any of its subsidiaries. (Christopher
Wagner: 2002, p 23).

Credit risk has long been considered the main risk incurred by a
bank. It is defined by consecutive losses due to default by the
borrower to meet its obligations and the deterioration of its
financial strength. Bessis, J. discusses the impact of this risk in
these terms: "The credit risk is a critical risk for failure of a
few large customers may be enough to put in serious trouble a
credit institution." The best way around credit risk is to do a
good business credit. (Bessis, J)

1.3.2.1. Operational risk

Operational risk is the expression of the probability of

occurrence of financial loss in case of disruption of the
activity of the financial, institution or those of a subsidiary
 21

attributable to external events, human error, inadequate or

even a failure of process or control measures. Operational
risk is likely related to inadequate or failed internal
processes, the operating and financial charges. (Christopher
Wagner: 2002, p 24).

We saw earlier that the credit risk creates a financial loss

evidenced by the financial risk, which risk causing further
including liquidity risk and credit risk, given the importance of
these on the financial health of financial institution, we return
to clarify these.

1.3.2.2. Liquidity risk

Before explaining the liquidity risk, first define 'he concept of

liquidity. Liquidity is the ability for a financial institution to nee'
its obligations when due in cash. These commitments can be met
either by using available cash, liquidating financial securities or
by borrowing on financial markets. (Christophe Wagner: 2002,
p28)

Liquidity risk itself, manifests itself when a financial institution

is not able to respond immediately to a depositor withdrawals or
is not able to meet the demand for credit. Recall that the
statement of the central bank requires that "Any microfinance
institution must at all times maintain a minimum liquidity ratio of
100%.

This ratio is defined as the ratio of available assets in the short

term and / or mobilized in the short term and current liabilities"

Liquidity management is a central element of political risk

management of a financial institution.

1.3.2.3. Risk of insolvency

When a bank does not have sufficient capital to absorb potential

losses they say he runs the risk of solvency. Prudential
 22

regulation sets minimum levels of capital in the context of risks

to which credit institutions are exposed.

The central bank says to this effect that "At times, all banks
must maintain capital equal to at least 10% of assets". (Arnaud
and Olivier Renault: 2004, p 23).

1.33. Assessing credit risk

Significant resources and sophisticated programs are used to

analyze and manage risk. Some companies run a credit risk
department whose job is to assess the financial health of their
customers, and extend credit (or not) accordingly. They may use
in house programs to advise on avoiding, reducing and
transferring risk. They also use third party provided
intelligence.

Most lenders employ their own models (credit scorecards) to

rank potential and existing customers according to risk, and
then apply appropriate strategies. With products such as
unsecured personal loans or mortgages, lenders charge a
higher price for higher risk customers and vice versa. With
revolving products such as credit cards and overdrafts, risk is
controlled through the setting of credit limits. Some products
also require security, most commonly in the form of property.

Credit scoring models also form part of the framework used by

banks or lending Institutions grant credit to clients for
corporate and commercial borrowers, these models generally
have qualitative and quantitative sections outlining various
aspects of the risk including, but not limited to, operating
experience, management expertise„ asset quality, and leverage
and liquidity ratios, respectively.

Once this information has been fully reviewed by credit officers

and credit committees, the lender provides the funds
subject to the terms and conditions presented within the
contract (as outlined above). Credit risk has been shown to be
 23

particularly large and particularly damaging for very large

investment projects, so-called megaprojects.

This is because such projects are especially prone to end up in

what has been called the "debt trap," i.e., a situation where - due
to cost overruns. Schedule delays, etc. - the costs of servicing
debt become larger than the revenues available to pay interest
on and bring down the debt.

1.3.4. Prevention of loans risks

Lenders mitigate credit risk using several methods:

1.3.4.1. Risk-based pricing:

Lenders generally charge a higher interest rate to

borrowers who are more likely to default, a practice called
risk-based pricing. Lenders consider factors relating to the
loan such as loan purpose, credit rating, and loan-to-value
ratio and estimate the effect on yield.

1.3.4.2. Covenants

Lenders may write stipulations on the borrower, called

covenants, into loan agreements:

 Periodically report its financial condition

 Refrain from paying dividends, repurchasing shares, borrowing
further, or other specific, voluntary actions that negatively
affect the company's financial position
 Repay the loan in full, at the lender's request, in certain
events such as changes in the borrower's debt ratio-equity
ratio or interest coverage ratio

1.3.4.3. Credit insurance and credit derivatives

Lenders and bond holders may hedge their credit risk by

purchasing credit insurance or credit derivatives. These
contracts transfer the risk from the lender to the seller
 24

(insurer) in exchange for payment. The most common credit

derivative is the credit default swap.

1.3.4.4. Tightening

Lenders can reduce credit risk by reducing the amount of credit

extended, either in total or to certain borrowers. For example, a
distributor selling its products to a troubled retailer may
attempt to lessen credit risk by reducing payment terms from net
30 to net 15.

1.3.4.5. Diversification

Lenders to a small number of borrowers (or kinds of borrower)

face a high degree of unsystematic credit risk, called
concentration risk. Lenders reduce this risk by diversifying the
borrower pool.

1.3.4.6. Deposit insurance

Many govern-e: its establish deposit insurance to guarantee bank

deposits of insolvent banks. Such protection discourages
consumers from withdrawing money when a bank is becoming
insolvent, to avoid a bank run, and encourages consumers to
hold their savings in banking system instead of in cash.

1.4. Loan Portfolio Objectives and improvement

Strategic portfolio planning is a major segment of the

institution's overall business and capital planning process and
a primary component of effective management. Through the
mission statement and an analysis of internal and external
factors, the strategic planning process should define
portfolio goals and objectives. This planning establishes a
framework for directing and controlling lending operations
to achieve plan objectives.

Strategic planning, at a minimum, should develop four basic

portfolio objectives: (1) quantified numerical targets for
 25

portfolio quality, (2) composition of the portfolio, (3) growth,

and (4) profitability.

1.4.1. Quality

Portfolio quality objectives should clearly define expectations

for new loan originations and loan renewals and should
determine which loans enter or remain in the portfolio. The
institution should use its loan underwriting standards to
control the asset quality and monitor trends in individual loans,
portfolio segments, or the entire portfolio. Quality objectives
can be modified to initiate desired changes in portfolio quality. If
quality objectives are tightened and if the institution becomes
more selective in the new loans it accepts or the loans it renews,
loan quality improves, and portfolio risk exposure is reduced
over time. Conversely, as these objectives are eased or as the
institution approves an increasing number of loans with
exceptions to underwriting standards, portfolio quality
declines, and the potential for loan deterioration and risk
exposure increases.

1.4.2. Composition

In conjunction with the board's risk parameters, portfolio

composition objectives control the quality and level of
portfolio risk concentrations within a specific industry or
geographic region. Standards can be specifically tailored to
meet the institution's composition objectives for managing
portfolio concentrations in new or special loan programs or
within individual industries or commodities. Composition
objectives can be tightened or eased in response to changing
conditions or risks to adjust the flow and quality of loan volume
that is accepted or maintained within each portfolio segment.
Once commodity or industry concentrations within the portfolio
reach the board's risk parameter for the institution, board and
management may consider selling participating interests in loans
 26

to other institutions to maintain business development and loan

relationships while distributing the risk.

1.4.3. Growth

Portfolio growth is a specific objective that each institution

should address. In that regard, growth objectives must clearly
consider market conditions and the level of competition faced by
the institution. The characteristics and quality of loans that can
be approved to achieve desired loan growth must be balanced
with the institution's credit expertise and its risk-bearing ability.

1.4.4. Profitability

Attaining portfolio profitability objectives depends on the

institution's loan-pricing policies that effectively relate the
costs of funding, originating, and servicing individual loans with
the loan's quality and inherent risk. As a result, loan-pricing and
portfolio profitability depends on consistent assessment of loan
quality against the numerical standards that are considered
necessary for continuing viability.

1.5. Generalities of socio-economic development

1.5.1. Economic development

Economic development is the process by which a nation improves

the economic, political and social well being of its people. The
term has been frequently by economist, politicians and others in
the 20th and 21st centuries. The concept has been in existence in
the west for centuries.

Whereas economic development is a policy intervention endeover

with aims of economic and social well being of people, economic
growth is a phenomenon of market productivity and rise in GDP
consequently as economist amartya sen points out <economic
growth is one respect of the process of economic development>

1.5.2. Growth and development

 27

Economic growth deals with increase in level of output, but

economic development is related to increase in output coupled in
social and political well fare of people within a country.
Therefore economic development encompasses both growth and
welfare values

1.5.3. Socio-economic development

Is the process of social and economic development in a society.

The consequences of population growth on economic
development have attracted the attention of economist ever
since. Adam smith wrote this wealth of nations and stated that
that as annual labor of every nation is the fund which originally
supplies it with all the necessaries and conveniences of life. It
was only Malthus and Ricardo who created an alarm about the
effects of population growth on the economy. But their fears
have proves unfounded because the growth of population
western Europe has led to its rapid industrialization population
growth has helped the growth of such economies because they
are wealthy, have abundant capital and scarcity of labor. In
such countries the supply curve of labor is elastic to the
industrial sector so that even a high growth rate of population
has led to rapid increase productivity. In fact, every increase in
population has led to a more than proportionate increase in
gross national product. Moreover, population growth has
effects on economic development in two ways: 1st by promoting
economic development and 2nd by retarding economic
development.(Adam smith)

According to miller (1970) and other economist like lewis (1954)

the growth of population has been an important factor in
economic growth of developing countries
 28

CHAPTER 2: EFFECTIVENESS OF LOANS MANAGEMENT AT

UNGUKA
BANK

2.1. Presentation of UNGUKA BANK

For conducting our research, we must first describe briefly our

case study UNGUKA BANK so as to give the general overview to
the readers.

As of June 2012, UNGUKA BANK LIMITED was a small but growing

financial service provider; whose total asset valuation and
shareholders' equity were publicly unknown at this time. At that
time, the bank had 556 shareholders and 14 branches.

Source: Unguka bank ltd report, 2016

2.1.1 History

The institution was founded in 2005, as UNGUKA microfinance

limited, by 215 investors with total capital of about
US$538,400(RWF: 321.1 million). In2012, the institution
transformed into a microfinance bank, following the issuance of
a microfinance banking license by the Nation Bank of Rwanda.
The bank rebranded as UNGUKA BANK LIMITED.

Source: Unguka bank ltd report, 2016

2.1.2 Ownership

The stock of UNGUKA BANK is privately owned by corporate and

individual investor, at this time, the detailed shareholding in the
bank is not widely publicly known.35% shareholding is owned by
rural impulse fund (RIF) 2.

Source: NBR 2016

2.1.3. Branch network

As of June 2012, UNGUKA BANK LIMITED maintains a network of

18 branches, including the following locations:
 29

Nyarugenge Branch-KIGALI
Nyabugogo Branch-KIGALI
Remera Branch -KIGALI
Musanze Branch –MUSANZE
Rubavu Branch -RUBAVU
Mukamira Branch –NYABIHU
Ngororero Branch -NGORORERO
Gakenke Branch-GAKENKE
Kora Branch -NYABIHU
Mahoko Branch -RUBAVU
Kabaya Branch -NYABIHU
Muhanga Branch - MUHANGA
Ruhango Branch RUHANGO
Kinazi Branch - MUSANZE
Burera Branch - BURERA
Kamonyi Branch KAMONYI
Base Branch – GAKENKE

Source: Unguka bank ltd report. 2012

2.2. The analysis of loans management in UNGUKA BANK

The credit policy aims to establish principles to be observed by

various managers and employees in managing credit. Credit
policy is designed to minimize the risk of loss.

Source: Unguka bank ltd report 2016

2.2.1. Types of credits

UNGUKA BANK operates in all sectors of productive investment

that generate value addition with positive social, economic and
environmental impact aligned both with national strategies and
the bank strategic priorities. The sectors include the following:

 Agriculture & livestock

 Manufacturing industry
 Education and health care
 Hotel and tourism
 30

 ICT
 Transport and related facilities
 Real estate
 Micro-finance
Source: Unguka bank ltd 2012

2.2.2 Procedures of lending

2.2.2.1. General conditions

The main conditions for obtaining bank's financial backing are as

follows:

1. A feasibility study for the project (technical and financial).

2. Adequate technical capacities in the field of the project for
which finance is being sought
3. Capacity to manage the project
4. Adequate market shares to ensure a good turnover level, and
project profitability
5. A minimum participation by the promoter varying between 30
and 50% of the cost of investment according to the size of the
project. For expansion projects, the contribution of the bank
can represent the totality of the necessary investment.
Source: NBR 2012

2.2.2.2. Guaranties

The bank must get adequate guarantees for the loans it gives out.
These are usually in the form of:
1. Mortgages with titles deeds,
2. A pledge of receivable,
3. The joint guaranty of spouse, associates, other partners
4. A Guarantee from the government, a guarantee fund, a bank,
other partners, foreign organizations, etc...
5. The pledge of material or financial resources...
6. Accidents and fire insurance, etc.

Source: Unguka bank ltd 2016

 31

2.2.2.3. Mortgage loan

A mortgage loan is a very common type debt instrument, used to

purchase real estate.

Under this arrangement, the money is used to purchase the

property. Commercial banks are given the security however or a
lien on the title to the house until the mortgage is paid off in
full. If the borrower defaults on the loan the bank would have
the legal right to repossess the house and sell it to recover
sums owing to it.

In additional loans can be classified according to the length of

the loan contract:

Short term loan: short term loan is the one whose dead line is
one of year not more. This loan is generally granted for the
financing f rolling fund where the individual or the individual or
the enterprise does not have a sufficient liquidity. The types of
short term loan bestowed by the banks are essentially
constituted of loans of treasury and the loans of mobilization of
the credence (L.Rieva, 2008:81)

Medium term: the medium term loans are loans of a length period
between one year and five years. These loans can be financed by
commercial banks but also by the financial institution in order to
facilitate the acquirement of goods of equipment of the
enterprises (L.Rieva, 2000:89)

Long term loan: is agreed for period of five years and more.
These loans permit to assure the financing of the needs of
investment of the enterprises this type of loan includes the
operations of investment or the first establishment. The long
term loan means the loan of investment the rea;l estate loan
guarantee loan transport as well the hold of involvement in the
social capital of the enterprises. These types of loan are
themselves intended to the financing of development, the leasing
that is an original formula of the investment also exists. It
 32

permits to use every movable or real estate to propositional use

without to be an owner, while paying for rent to the society of
leasing that bought the goods. (L.Rieva, 2000:78)

2.2.2.4. Financial conditions

The interest rate is negotiable between the bank and the

customer and takes into account the cost of resource used for
the financing, the collateral security offered, the risk of the
investment, the credibility of the investor and the economic and
the social impact of the project.

Source: world Bank 2015

2.2.2.4. Repayment period

The repayment varies and can be up to 4 years depending on the

cash-flow projected for the project. At present, the average
repayment period is between 2 and 4 years.

2.2.3. Procedures of granting loans in UNGUKA BANK

The procedure for extensions of credit in UNGUKA BANK

includes the following steps,
The registration of the application
The valuation of collateral Analysis of the documents
The decision to grant
UNGUKA BANK classify it loans according to the theory of A, B,
C, D, E in the following let see how that theory applied.

Source: NBR 2016

2.2.3.1. Registration of the application

The registration of the application is one step close application

that allows the customer to receive all necessary information
on credit wishes, including the requirements.

The various components of the application of credit are:

 33

- The credit application form which collects information on the

customer's identity, the appropriation requested amount,
duration, monthly payment, client resources and its jobs, its
net income and warranty information.
- Documents to finance the project.
- On the pro forma items to buy.
- The balance sheet and income statement reflecting the assets
and liabilities, revenues and expenses of any business and/ or
family member of the borrower.

The information provided by it, are supported by appropriate

documents including: the license or operating license, the
business registration, tax declaration and various taxes,
purchase orders, the titles ownership of the house or building,
etc...

Source: Unguka bank report 2016

2.2.3.2 Analysis of the file

For the management of credit portfolio is fully effective, must

be applied effectively three stages: the analysis of credit,
monitoring and recovery.

From the development of the credit policy in UNGUKA BANK and

quantitative result based on data from its application, we
analyzed the effectiveness of the implementation of its three
states based on different indicators.

 Purpose of the credit requested

Credits for individual and solidarity, credits are granted for

productive activities.

To advance payday loans, credit is awarded for productive

activities or to end consumption. from this point, it is not always
necessary financing or individual credits either for productive
activities, since it could be that the borrower already has a
revenue generating activity able to repay this loan.
 34

 User of credit

The borrower agrees specifically to the same credit agreement

to use the money borrowed for the purpose stated. Otherwise,
the balance of the credit granted shall be immediately due and
guarantees are achievable without further notice.

 Ability to repay

The ability of borrower to repay is the primary concern in

UNGUKA BANK. This is the decision criteria associated with the
largest analysis of a credit application.

Ability to repay is assessed on the bases of current capacity to

repay. This is the current capacity of the borrower to the loans
payment to question. THE UNGUKA BANK must consider the real
and regular income of the borrower. The earnings of accompany
are sometimes more difficult to assess with precision and
sometimes require the analysis of financial cash flow of the
company.ie the inputs and outflows.( Unguka bank report,2016)

A customer seeking for a loan must demonstrate its ability to

repay before granting credit. The revenue sources should be
clearly identified and must be easily verifiable. Overall, to
assess ability to repay a client, UNGUK BANK consider for a
given period, the total amount of its existing obligation added
to the amount of refunds that would be owed on the loan
requests, all compared to revenues of prospective borrower.

There are other considerations as the client may not have the
capacity no, but since the activity is profitable to finance, he will
repay a loan after financing, then it would be preferable for the
credit policy is aware in UNGUKA BANK not the point.

Anticipated ability to repay, it is the customer' future ability to

meet repayment obligation under it will contract a loan.

2.2.3.3. Approval and disbursement of loans

 35

The loans officer is responsible for the customer identification

collection, analysis and validation of data and information to a
credit application. Thereafter, the application is submitted to the
coordinator who reviews credit, valid is the information is
checked against data as needed.

The credit manager established the admissibility of the credit

application i.e. the compliance of a request with the credit policy
in UNGUKA BANK. Then the application is submitted to credit
committee for decision.

2.2.3.4 Evaluation of the guarantee

Guarantees are systematically requested by the commercial

banks. In UNGUKA BANK also cannot escape this practice,
especially since it lends from customer deposits. The guarantee
is used to obtain all cost; repayment of loans.

All warranties caused two kinds of the problem bank faced

including: lack of security meeting the requirement of ban, the
realization of assets mortgaged demand often lengthy legal
proceedings.

2.2.3.5. Follow-up on loans Supervision of the loan officer

checking the use of credit (followed after disbursement),
regular monitoring by looking on performance of the business,
after a visit two days late to see the situation of the borrower,
analyze the causes actual delay and see how with the borrower
to pay as soon as possible.

Source: Unguka bank ltd report 2016

2.2.3.6. Legal recovery

When recover procedures amicable have not resolve the

situation completely ready late, the UNGUKA BANK must
immediately use the judicial recovery guarantees.

2.2.3.7. Classification and Provision

 36

At least quarterly, UNGUKA BANK must assess the quality of its

loans portfolio. A reserve for doubtful accounts must be
established and presented in the balance sheet in UNGUKA BANK
any credit displaying more than 360 days should be disbarred.
The cancellation of a debt does not eliminate the obligation in
UNGUKA BANK to continue proceedings of judicial recovery
company to repay the debt. As a minimum, the Bank shall apply the
percentage amounts shown below for provisioning for each
category of loans but may increase this level where the
associated risk in a financial asset or group of assets demands.

Table 1: Provision rate

Loans Minimum% amounts for Computation of amounts

classification provisioning of specific provision
based on
Normal Only general provisions are required
Watch
Doubtful 20% Net loan balance after
deduction of interest in
suspense
Litigious 50% Net loan balance after
deduction of interest in
suspense
Contentious 100% Net loan balance after
deduction of interest in
suspense

Source: Secondary data

For non-performing categories, the percentages will be applied

to the net balances after deduction of interest in suspense.

The provisions level shall be reviewed at least on a quarterly

basis and reported to the National Bank of Rwanda.

Cash-backed security or collateral in form of holdouts on

deposits or other funds with the bank may be deducted from the
 37

outstanding balance of a credit facility before applying

provisions.

Provisioning will take into account value of security held

against the credit facility in line with the security discount rates
prescribed by BNR,
 38

Table 2: loans classification

Grand A. Normal B. C. D. E.
(class) Risk Watch Doubtful Litigious Contentious
Period
Installments in
arrears
Monthly Up to date Less 3 months 3 months 12 months
repayment than 3 but less but less and above
months than 6 than 12
months months
Quarterly Up to date 1(not 2(not paid 3(not 4 months or
repayment paid within 3 paid more
within 2 months) within 1
months) month)
Semi-annually Up to date 1(not 1(not paid 2(not 2(not paid
repayment paid within 3 paid within 3
within 2 months) within 2 months)
months) months)
Annually Up to date 1(not 1(not paid 1(not 1(not paid
repayment paid within 2 paid within 4
within 2 months) within 3 months)
months) months)
OVERDRAFTS
Excesses None -Not Less than More Permanently
more half the than in excess.
than days in a half
once a period of days in a
month. three period of
-5 days months. three
to 2 months.
weeks.
Credit line Unexpired Expired Expired None None
within within 3-6
less months
than 3
months
Interest Up to date Not paid Unpaid Nil Nil
payment repayment within 3 within 3-6
months months
DISCOUNTED Bills not Overdue Overdue Overdue Overdue in
BILLS yet due less 3-6 6 months excess of 12
than 3 months but less months.
months than 12
months.
 39

Source: Unguka bank ltd report, 2011

 40

2.3. Respect of BNR norms by UNGUKA BANK

2.3.1. Comparison between deposits and credit issues by UNGUKA

BANK

In this section we showed the comparison between the depot and

credit issues by UNGUKA BANK during our period of study. The
tables below show that link.

Table 3: Comparison between deposit and credit to UNGUKA

BANK 2014-2016 (amount in thousands)

Year Deposit Credits Portion in %

In 000 rwf in 000 rwf
2014 2,395,475 1,969,857 82.2
2015 2,581,563 2,004,485 77.6
2016 3,896,320 3,115,344 79.9

Source: financial statement of UNGUKA BANK 2015-2016

According to the table above, the portion between deposit and

credit in UNGUKA BANK is lower than 80% recommended by BNR
during our period of the study. We found that the portion was
80.4 in 2014, 77.6 in 2015 and 79.9% in 2016. This rate respect
with that what recommended by BNR.

2.3.2. Recovery loans

The following table shows the level of recovery loans to

UNGUKA BANK 2014-2016

Table 4: level of recovery loans to UNGUKA BANK 2014-2016

Year Loans Loans Loans non Rate of Rate of

given in reimburses reimbursed recovery non
000 RWF in in 000rwf 000rwf recovery
000 rwf In %
2014 1,969,857 1,898,467 71390 96.9 3.6
2015 2,004,485 1,956,201 48284 97.5 2.4
2016 3,115,344 2,974,356 140988 95.4 4.5
 41

Source: financial statement of UNGUKA BANK 2015-2016

According the table above, the recovery rate is 97% in 2015,

87.5%, 96.9 in 2014, 97.5 in 2016 through the interview with the
rate of recovery of credit said that in these years bank majority
of loans given was reimbursed at term of contract and respect
the BNR regulation said that the rate of non recovery loans
must be lower than 5%.
 42

Partial conclusion

The second chapter aims to verify the first hypothesis" UNGUKA

BANK loans are managed effectively in rubavu branch" after the
verification and analysis we get following result:

About the credit granting, UNGUKA BAK ltd/ rubavu branch has
a strict policy and comply all prudential rules of BRN's
regulation and criteria for analysis said that the rate of non
recovery loans must be lower than 5%. UNGUKA BAK ltd/ rubavu
branch has a provision of loan classification that are: normal
and watch had only general provisions are required, doubtful
20%, litigious 50% and contentious 100%, About the credit
granting procedure in UNGUKA BANK follows steps well
described in this manual of procedures those are the following
The procedure for extensions of credit at UNGUKA BANK
includes the following steps:

- The registration of the application, the valuation of collateral,

analysis of the document the decision grant...

Even if the great amount were reimbursed but there is the some
reimbursed loans which constituted the risk of none reimbursed
loans at UNGUKA BANK ltd/ rubavu branch. Therefore, our first
hypothesis has been verified and confirmed.
 43

CHAPTER 3: THE CONTRIBUTION OF UNGUKA BANK LTD/RUBAVU

BRANCH LOANS TO THE SOCIAL AND ECONOMIC
DEVELOPMENT OF BENEFICIARIES

3.1. INTRODUCTION

This chapter gives a brief description of the study and as

UNGUKA Bank Ltd and the research findings presentation. In this
chapter, the researcher showed the view of clients
collaborated with UNGUKA Bank Ltd at RUBAVU BRANCH
revealed through the distribution of 95 questionnaires.

3.2. Research methodology

3.2.1. Research design

According to C.R KOTHARI 2005:556 the size of the sample should

neither be excessively large nor too small. It should be optimum,
a optimum sample is one which fulfills the requirements of
efficiency, representativeness, reliability and flexibility.

3.2.2. Target population

According to Muchiell (1996:67) the population is a whole people

involved in research that constitutes a set. it designs a whole
individual where the researcher is interested on.

Despite to this, our research is constituted by a population of

15067 of UNGUKA BANK ltd/ rubavu branch customers
according to the report December 2016.

3.2.3. Sampling

For the sample size, the researcher have emphasized on the

determination's table of the sample size of Alain Bouchard (1990)

n* N
NC = Therefore CN=
N n

Where NC is stands for the sample size collected

 44

N stands for definite population

N stands for population size

According to Alain BOUCHARD. When the population size is less

1000000 elements, the definite population of 96 elements is
taken and the above formula is used for our case, n or the
population is 15067

15067  96
 95
96  15067
 45

3.2.2. Demography profile of respondents

Demographic of respondent from UNGUKA Bank Ltd such as age,

gender distribution, marital status, level of education,
occupation held in UNGUKA Bank Ltd has been discussed and
presented in order to know the respondent's towards the
research.

3.2.2.1. Distribution of sample respondents according to age

One of the demography profiles of respondents investigated

upon was their age. In this regard, the research wanted to know
categories of age collate with UNGUKA BANK LTD.

Table 5: Distribution of simple respondents according to age

Ages Respondents Percentages

20-29 15 16%
29-39 25 26%
40-49 33 34%
Above 50 22 24%
Total 95 100%

Source: primary data 2016

Information from the table above shows that the highest

percentage of respondents was ranging between 40-49 years
with the percentage of 34%. The next group of respondent is
ranging from 30-to 39 years with percentage of 26%

The third group is ranging from 20 to 29 years with percentage

of 16%. And the last one is over 50 year with the percentage of
24%. As it is observed from the table above, the research said
that the adult people collaborate more with UNGUKA BANK
LTD. And the number of young people are still less.
 46

3.2.2.2. Distribution of respondents according to gender

The fact of collaborating with UNGUKA Bank Ltd is not

depending on the gender; the reason why the researcher did
not only questioned men in order to know among men and
women who are interested in accessing micro-financial
services.

Table 6: distribution of respondents according to gender

Gender Frequencies Percentages

Male 39 41%
Female 56 59%
Total 95 100%

Source: primary data 2016

As shown from the table above, the female respondents

constitute a big part of clients of UNGUKA BANK LDT with a high
percentage 59% of the total questioned people where as the
male constitute 41%of the total respondents. This shows that on
our days women are very interested in accessing bank service, so
as to improve and sustain their social economic welfare of living.

3.2.2.3 Distribution of sample respondents according to their

marital status

Under this part, civil or marital status of respondents was also

put under consideration. This is considered because the
population is not homogeneous and consisted of single, married,
divorced and widower/widows respectively. S however these
categories consist to clients of UNGUKA BANK LTD RUBAVU
branch so as to know with category participates more than
others.
 47

Table 7: respondent's according to the marital status

Marital Single Married Divorce Widower/widow Total

status
Respondents 23 28 11 33 95
Percentage 24 29 11.5 30.5 100%
(%)

Source: primary data 2016

The information from this table shows that widows/widowers

respondents constitute the highest percentage of 30.5% of
respondents, followed by married people with 29% of
respondent, single respondents come up with 24% and the
divorced ones are on the level of 11.5% and it is lowest
percentage of the sampled respondents. This question was set
with an aim of knowing the category of respondents that get
much involved in micro finance activities in turn to enhance and
the research came up with the widow respondents because they
are the chiefs of families with orphans without any other person
to assist them.

3.2.2.4. Distribution of sample respondents according to their

education

Education of sample respondents was also put under

consideration, since education plays an important role in
determining people understanding about the important of micro-
financial services. So, the study considered the educational
level of respondents in order to know if to collaborate with
UNGUKA Bank Ltd/rubavu branch requires being highly
educated.

Table 8: Education level of sample respondents

Level Primary Secondary training Higher No total

education education
Respondents 35 20 15 10 15 95
 48

Percentage 36.8% 21.3% 15.7% 10.5% 15.7% 100%

(%)

Source: primary data 2016

According to the table above, one can witness that: the majority
of respondents belong to the primary school contributing to a
portion of 36.8%. The second category of respondents totaling
to a tune of 15.7% possessed training, whereas 21.3% only
completed secondary level, 15.7% have not any education and
10.5%have university, to ensure the improvement n of living
condition, education contributes a crucial role; therefore, this
question was set with an aim of knowing where working with
UNGUKA BANK LTD/rubavu branch or any other micro-finance
institute requires someone being highly educated. However,
those with only the primary level of education can run out of
their business in collaboration with UNGUKA BANK LTD/ rubavu
branch.

3.3. Presentation, analysis and interpretation of the results.

In this part, the research made analysis and interpretation of

data which collected from the respondents that enable the
researcher to verify the second hypothesis

3.3.1. Evolution of clients working with UNGUKA BANK LTD/

rubavu branch

Based on the report of Unguka bank it seems that the client had
been increased as long as Unguka bank ltd / rubavu branch
improving its performance, customer care and its resistance Vis a
Vis the microfinance crisis in 2007-2009.

Table 9: evolution of client during the period of 2014-2016

Years 2014 2015 2016

Clients 8999 13051 15067
Percentage 10% 57% 33%
(%)
 49

Source: Primary data 2016

From the table above, the study shows the starting period of
different clients working with UNGUKA Bank Ltd/ rubavu
branch. The year 2015, gives highest number of clients who
joined UNGUKA Bank Ltd /rubavu branch. With percentage of
57% being followed by those who joined UNGUKA BANK LTD
/rubavu branch in 2016 with a percentage of 33% out of the
total percentage. The research this question with an aim of
showing ever since when the citizens of rubavu sector and
around become people interested in UNGUKA BANKL LTD/rubavu
branch activities

As you can see in the above table there are some years with many
clients, it is because people joined UNGUKA BANK LTD/ rubavu
branch after knowing the importance of small loans.

3.3.2. The perception of respondents about working in groups

In order to know the views of the clients about working in

cooperatives, the research asked the questionnaire to the
people to know whether they are interested working in group or
not. And answers are in the following table.

Table 10: the working in groups between customers

Responses Yes No Total

Respondents 67 28 95
Percentages 70.5% 29.5% 100%

Source: primary data 2016

Considering the information from the table, 70.5 % of the total

respondents was interested in working in cooperatives and 29.5%
were interested to work alone, once asked with the gain from
being involved in the group of people, they said that the following
advantages were given:
 50

 They meet and exchange ideas on different issues mostly on the

loan they get and how to use it effectively hence able to pay back
as fall due.
 Helping each other both in happiness and in bad or hard event.
 Explaining each other about the business they get loans
without security

In fact, this 29.5% respondent said that they don't like to work in
group because they are afraid of working hard and gain less
during sharing incomes.

3.3.3 Creation of activities generating revenues from the loans

obtained

Unguka bank ltd/ rubavu branch sensitize and motivating its

customer to use the loans obtained in the activities that
generate sufficient income in order to help them to reimburse
their debt.

Table 11: creation of activities

Sector of Live commercial education other total

Agriculture
activities stock
Respondents 22 32 18 11 12 95
percentages 23% 34% 19% 11% 13% 100%

Source: primary data 2016

This above table shows the creation of the activities generating

revenues from the loans obtained in UNGUKA Bank Ltd/ rubavu
branch,23% was the female and male who created activities in
sector of agriculture generated from the loans obtained in
UNGUKA Bank Ltd/ rubavu branch,34% was the female and the
male who created activities in sector of live stock generating
the loans obtained in UNGUKA Bank Ltd / rubavu branch, 19%
was the female and the male who created activities in sector of
commercial generated from the loans obtained in UNGUKA Bank
Ltd / rubavu branch, 11% was the female and the male who
 51

created activities in sector of education generated from the

loans obtained in UNGUKA Bank Ltd / rubavu branch, 13% was
the female and the male who created activities in sector of
other generating the loans obtained in UNGUKA Bank Ltd /
rubavu branch.

3.3.4. Savings generating revenues from the loans obtained from

UNGUKA Bank Ltd/ rubavu branch

In regarding the problems faced by the clients before joining

UNGUKA BANK LTD/ rubavu branch, the answers given are in the
below table.

3.3.5. The contribution of UNGUKA Bank Ltd /rubavu branch in

poverty reduction

In order to know the contribution of UNGUKA Bank Ltd

/rubavu branch, the researcher asked the client if UNGUKA
Bank Ltd/rubavu branch contributes to the poverty reduction,
and their views are the following:

Table 12 : Views of respondents about the contribution of

UNGUKA Bank Ltd /rubavu branch in poverty reduction

Responses Yes No Total

Respondent 67 28 95
percentages 70.5% 29.5% 100%

Source: primary data 2016

The table above shows that 70.5% of all respondents agreed

that UNGUKA Bank Ltd/ rubavu branch contribute to the
poverty reduction, 29.5% of the respondent are disagree that
that UNGUKA Bank Ltd /rubavu branch contribute to the
poverty reduction , the 70.5% of respondents said that UNGUKA
Bank Ltd/ rubavu branch contribute to the improvement of many
living condition of its clients because they got credits and they
created small and medium business, they got also the ability for
 52

buying basic need, to pay health insurance, to pay the school

fees, etc.
 53

Partial conclusion

The verification of our second hypothesis which branch loans

contribute to the poverty reduction by offering credits to
Rwandan population" we agree that is true. in regarding to the
given responses customer who got credit from UNGUKA Bank
Ltd/ rubavu branch testify that getting credit from UNGUKA
Bank Ltd / rubavu branch change living condition like : feeding,
health education, clothing, housing, and home equipment and
that the loan obtained in UNGUKA Bank Ltd/ rubavu branch
increased their revenues.

By verify our second hypothesis which is "UNGUKA Bank Ltd /

rubavu branch loans contribute to the poverty reduction of its
beneficiaries "is confirmed to be true.

Therefore, UNGUKA Bank Ltd / rubavu branch contribute to the

poverty reduction by offering credits to its customers and
customers that the researcher met are more interested, the
hypothesis is confirmed and verified.
 54

GENERAL CONCLUSION AND SUGGESTIONS

General conclusion at the end of this research "IMPACT OF

LOAN MANAGEMENT

ON THE SOCIO-ECONOMIC DEVELOPMENT OF BENEFICIARIES Case

study UNGUKA BANK (rubavu branch 2014-2016)"

The first chapter is the literature review of the key concepts,

this means all theories related to the topic of research.

The second chapter analyzing the effectiveness of loans

management at Unguka bank that directed at resolving the first
research question and testing the first hypothesis.

The third chapter is the contribution of UNGUKA Bank

Ltd/rubavu branch loans to the poverty reduction of
beneficiaries

The study was oriented to find answers to the following

questions:

 Is the loans management at UNGUKA Bank Ltd/ rubavu branch

effective?
 Do UNGUKA Bank Ltd/ rubavu branch contribute to the Socio-
economic development of beneficiaries?

At the beginning, it was assumed that:

 The loans management at UNGUKA Bank Ltd/ rubavu branch is

effective.
 UNGUKA Bank Ltd/ rubavu branch loans contribute to the
Socio-economic development of the beneficiaries

The second chapter we have to examine the loans management at

UNGUKA Bank Ltd/rubavu branch if is effective.

The result are show that the sector of activities such as:
construction, commercial and transport, are financed by
UNGUKA Bank Ltd/ rubavu branch in credit policies. In this
 55

chapter. We have shown the presentation of ungula bank and

we localize and give history of this bank and creation date in
pour research, we have to show credit management in UNGUKA
Bank Ltd/ rubavu branch so according y the results the first
hypothesis was verified and confirmed.

The second hypothesis is verify if there are the contribution of

UNGUKA Bank Ltd/ rubavu branch loans in poverty reduction,
after the verification the result are confirmed, we find a big
contribution of UNGUKA Bank Ltd/ rubavu branch in poverty
reduction because the improvement of living condition for the
population who are their clients and the increase of their
revenues Our result are this/By verifying our second hypothesis
which is "UNGUKA Bank Ltd/rubavu branch loans contribute to
the improvement of poverty reduction of beneficiaries" is
confirmed to be true

Therefore, Unguka bank contributes to the Socio-economic

development of their client by offering credit to them.

SUGGESTIONS

In order to realize the target and goals of UNGUKA Bank

Ltd/rubavu Branch, below are the suggestion research
proposed

To UNGUKA Bank Ltd / rubavu branch

 to increase type of loans in different activities and mobilize all

clients to get loans on all types because there some activities
the loans are not interested on their client
 to reduce interest rate charged on credit and increase
enumerated to the fixed term
 to train the client how to create rentable project
 to minimize the constraints hindering the people to joint bank
services like collateral security

To clients
 56

 to respect bank's policy

 to be honest
 to be a good clients
 to respect the conventions of payment

BIBLIOGRAPHY

1 .BOOKS

1. Arnaud and Olivier Renault 2004:12 credit risk management,

2. Bessis , introduction to banking,
3.Chevalier, commercial banking, prentice-hall, Ontario 1978;
p168
4. Christopher Wagner 2002; 23
5. Garsuaul Priami 1997; 264
6. Grinner and William, (1990) Research methodology, London
rout leadge, education book
7. Marlec P. 1983: 523
8.Mulumbati (1980; p2) Research methodology
9. NBR, 2008; 7-10
10. Petet dutallis 1998; 16
11. Robert Hodge, Accounting a FOUNDATION, 2008, P517
12. Rose karlon and Fraser, (1993) financial institutions,
understanding and managing financial service, 4th edition
cornell university, new york
13. Terry and Franklin 1985; 12
14. Natarajan (2012) bank theory, law and practice, 21st revised
edition
15. Combridge leaners: mit press
16. Signoriello, Vincent commercial loan practices and
operations
17. C.R Kothari (1990) research methodology
18. L.rieva(2000: 89)

2. Report

1. BNR, Annual report, Kigali, 2016

 57

2. World Bank report BNR, 1998.

3. Unguka bank ltd report 2011
4. Unguka bank ltd report 2016
5. Unguka bank ltd report 2015

3. DISSERTATION AND CLASS NOTE

1. ABAYIENGA Emmanuel, the role of loan management in

sustainability of microfinance institutions.
2. MUKAMANA Rose, contribution of BPR du Rwanda ltd on
social economic development of rural area.

4. ELECTRONIC REFERENCES

www.wikepedia .org, 2016.

www.britannica.com .2016

www.ecb.europa.eu. 2016

www.bnr.rw..2016

www.federalreservebroard.com 2016
 58

APPENDICES
 a

QUESTIONNAIRE ADDRESSED TO BENEFICIARIES OF UNGUKA

BANK LTD/RUBAVU BRANCH LOANS

Dear respondents,

I NZAYISENGA ADRIEN INDEPENDENT RESEARCHER AM DOING

RESEARCH ON LOAN MANAGEMENT I REQUEST INFORMATION TO
ASSURE THE STUDY COMPLETION

We take this opportunity to thank you and look forward for your
mutual co-operation and much attention you will provide to this
work.

NZAYISENGA ADRIEN
 b

QUESTIONNAIRE

Identification of respondents

1. Gender
a. male
b. female

2. Age
a. 2o-29
b. 30-39
c. 40-49
d. 50 and more

3. Marital status:

a. Single

b. Married

c. Widow(er)

d. Divorced

4. Education profile:

a. Primary

b. Secondary

c. University

d. Illiterate

5. Profession

a. Farmer

b. Businessman

c. Public service

d. Others
 c

INSTRUCTION:

 Choose the answer in reserved place

Question related to first hypothesis

1. How did you become a member of UNGUKA BANK/Rubavu

branch?

1. Mobilized
2. My own decision
3. Compulsory
4. My friends advice
2. What are the financial services do you get from UNGUKA
BANK/Rubavu branch?
1. To deposit money
2. To save money
3. To withdraw money
4. To ask for credit
5. To facilitate payment
6. Financial services advice
7. Finance small business activities

3. Did you receive credit from Unguka bank/Rubavu branch?

1. Yes
2. No

4. What kind of credit do you get through Unguka bank/Rubavu

branch?

1. Short term credit

2. Medium term credit
3. Long term credit
 d

5. What are your projects that are financed by unguka

bank/rubavu branch?

1. Agricultural project
2. Live stock
3. Commercial project
4. Education project
5. Others

Questions related to the second hypothesis

6. What was your monthly income before joining unguka

bank/rubavu branch?

1. Less than 10,000rwf

2. Between 10,000rwf-50,000rwf
3. Between 50,000rwf-100,000rwf
4. Above 100,000rwf

7. What is your monthly income after joining unguka

bank/rubavu branch?
1. Less than 10,000rwf
2. Between 10,000rw-50,000rwf
3. Between 50,000rwf-100,000rwf
4. Above 100,000rwf

8. Does Unguka bank ltd /Rubavu branch play a significant role

in health insurance?

1. Very agree
2. Agree
3. Not agree

9. Does unguka bank ltd/rubavu branch participate in school

fees of your children?
1. Strongly agree
2. Very agree
3. Agree
4. Not agree
 e

10. How do you consider the living standards after joining

unguka bank ltd/rubavu branch?

1. Decrease
2. Increase
3. No change

11. Did unguka bank follow the best usage of loan provided to
you?

1. Yes

2. No

12. If yes, what is the manner which unguka bank uses to follow
the use of the loan

1. Seminars

2. Bank visit

3. Monitoring the loan purpose

13. If unguka bank follows the usage of loan provided to you,

what this helped you?

1. Prevent penalties

2. Prevent the loss

3. Facilitate the usage of money to the requests

 f

URUTONDE RW’ IBIBAZO KU BAGENERWA BIKORWA BA BANKI YA

UNGUKA ISHAMI RYA RUBAVU.

NJEWE NZAYISENGA ADRIEN, UMUSHAKASHATSI WIGENGA

NDAKORA UBUSHAKASHATSI KUMUICUNGIRE YINGUZANYO
ZIHABWA ABAGENERWA BIKORWA BA UNGUKA ISHAMI RYA
RUBAVU MU MWAKA « 2017-2018 » Tuboneyeho no kubashimira
ubufatanye muzatugaragariza muri ubu bushakashatsi.

NZAYISENGA ADRIEN

Umwirondoro w ‘usubiza

1. Igitsina
a. gabo
b. gore
2. Imyaka
a. 2o-29
b. 30-39
c. 40-49
d. 50 no hejuru

3. Irangamimerere:

a. Ingaragu
b. Warashatse
c. Umupfakazi
d. watanye n’uwo mwashakanye

4. Amashuri wize:

a. Abanza
b. Ayisumbuye
c. Kaminuza
d. utarize

5. umwuga ukora

a. Umuhinzi
b. Umucuruzi
c. Umukozi wa leta
d. Indi mirimo
 g

AMABWIRIZA:

 Hitamo igisubizo kandi usubize aha bigenewe

1. Mwabaye abanyamuryango ba unguka binyuze muzihe nzira?

1. Babibakanguriye
2. kubushake bwanyu
3. Ku itegeko
4. kubera inshuti

2. Ni izihe serivise zijyanye n’ amafaranga muri banki ya unguka ?

1. Kubitsa amafaranga
2. kubikuza amfaranga
3. Kwaka inguzanyo
4. Gufasha kwishyura
5. Gutanga inama kuri service z ‘amafaranga

6. Gutanga inguzanyo ku bacuruzi bato

3. Mwafashe inguzanyo muri banki ya unguka?

1. yego
2. oya

4. Ni ubuhe bwoko bw’ inguzanyo mwafashe muri unguka?

1. Mu gihe gito
2. Mugihe kigereranije
3. Igihe kirekire

5. Ni iyihe mishinga yanyu itezwa imbere na banki ya unguka?

1. Ubuhinzi
2. Ubworozi
3. Ubucuruzi
4. Uburezi
5. Ibindi

6. Ni aya he mafaranga mwabonaga mu kwezi mbere yo kujya muri

banki ya Unguka?
 h

1. Munsi y’ amafaranga ibihumbi 10,000

2. Hagati y amafaranga ibihumbi10.000 na 50,000
3. Hagati y amafaranga ibihumbi 50,000 na 100,000
4. Hejure y ‘ ibihumbi 100,000

7. Ni ayahe mafaranga mufite nyuma yo kujya muri banki ya

Unguka?

1. Munsi y ‘ amafaranga 10,000rw

2. Hagati y’ibihumbi 10,000rw na 50,000rw
3. Hagati y ‘ amafaranga 50,000rwf na 100,000rw
4. Hejuru y ‘ amafaranga 100,000rw

8. Ese banki ya unguka ishami rya Rubavu ifite akamaro mu

bwishingizi bw’ ubuzima?

1. Ndabyemera cyane
2. Ndabyemera
3. Simbyemera

9. Ese banki ya unguka ifasha abana banyu kwiga?

1. Ndabyemera birenze
2. ndabyemeracyane
3. ndabyemera
4. simbyemera

10. Nigute mubona imibereho yanyu nyuma yo kujya muri banki ya

Unguka?

1. yaragabanutse
2. yariyongereye
3. Nta mpinduka

11.Ese banki ya unguka ikurikirana ikoreshwa ikoreshwa

ry’inguzanyo ibaha?

1. Yego

2. Oya

12. Niba ari yego banki ya unguka ikoresha ubuhe buryo

mukubikurikirana ?
 i

1. Amahugurwa

2.Banki iradusura

13.Iyo banki ya unguka ikurikirana ikoreshwa ry’inguzanyo

yabahaye bibafasha iki ?

1. Bibarinda ibihano

1.Bibarinda igihombo

2.Bituma amafaranga akoreshwa icyo yasabiwe