An Econometric Evaluation of Microfinance Institutions Performance through Savings Mobilization and Loan Deployment in Northern Uganda

Abstract

The study investigated microfinance institutions performance through savings mobilization and loan deployment in the Acholi sub region using an econometric approach. The specific objective was to examine the structural stability of the districts on micro savings mobilization and loan deployment within the sub region. The study was carried out in the seven districts of the sub region. Panel data were pooled for all the microfinance institutions in the sub region on the levels of savings, loans, capitalization funds and the number of beneficiaries for the period 2008 to 2011. The application of the econometric techniques were in sequence from the Pooled Regression Model to the differentiation in choice between the Fixed Effect Model and Random Effects Model. Further, the data were tested for heteroscedasticity and covariance structure of the variables so as to ascertain the robustness of the estimators. The districts were structurally unstable due to differential intercepts, which is the underlying average loan deployed for each of the districts and not slopes, which indicate the variations in loan deployment resulting from a unit change in the covariates savings, capitalization funds and the number of borrowers. There is need to increase both equity and debt funds as components of total loanable funds so as to enhance the operations of SACCOs across the districts. Equity funds should be increased internally through upward revision in the per unit share capital to be bought upfront by members who are joining the SACCO. Debt funds could be sourced externally from both local and foreign lending agencies.

Keywords: District Structural Stability Tests, Micro Savings and Loans, Acholi Sub Region, Uganda