Optimizing Loan Portfolio Quality through Strategic Financial Controls: Modeling Managerial Competence as a Contextual Catalyst in Uganda's Microfinance Sector

Abstract

Purpose: This study examines the relationship between financial management practices and loan portfolio quality among non-deposit-taking microfinance institutions (NDFIs) in Uganda's Rwenzori region. It also investigates the moderating influence of managerial competence on this relationship. Design/methodology/approach: A cross-sectional quantitative survey design was deployed across all 8 registered NDFIs within the region. Primary data were gathered from a stratified random sample of 228 financial staff, including accountants, credit analysts, and branch managers. Hypotheses were tested using Pearson correlation and hierarchical multiple regression analyses in SPSS. Findings: Financial management practices and managerial competencies both exhibit strong, significant positive relationships with loan portfolio quality. Hierarchical regression confirms that managerial competencies significantly moderate the financial practices–portfolio quality nexus, expanding the explanatory variance by an additional 6.5%. Research limitations/implications: The empirical scope is constrained by a cross-sectional timeframe and localized focus on the Rwenzori region. Future studies should prioritize a longitudinal design and evaluate structural institutional mediators like corporate governance or digital underwriting platforms. Practical implications: Microfinance executives must actively pair structural credit appraisal controls with continuous management training. Implementing robust technical budgeting and proactive cash-flow tracking reduces localized borrower default.