The Impact of operational risk on performance of Microfinance Institutions in Zimbabwe (2000-2023)

Author

Nancy, Pitori.

Title

The Impact of operational risk on performance of Microfinance Institutions in Zimbabwe (2000-2023)

Abstract

This study investigates the impact of operational risk on microfinance institutions (MFIs) in Zimbabwe. Focusing on KCI microfinance, the research examined data from three KCI branches between 2000 and 2023. In this study, regression analysis was employed to assess how operational factors affect financial performance. The study considered performance as KCI's return on assets (ROA) and operational risk through factors like cost-to-income ratio, operating expense ratio, and operational efficiency ratio. Research findings revealed both positive and negative relationships between operational factors and financial performance. A positive correlation emerged between operational efficiency and ROA, indicating efficient operations contribute to profitability. Conversely, cost-to-income ratio, operating expense ratio, interest rates, exchange rates, and inflation rates all exhibited a negative association with ROA, suggesting they hinder financial performance. In conclusion findings revealed a significant negative influence of operational risk on MFI profitability. High staff costs associated with organizational management appear to be a key delinquent. Based on these findings, the study suggests that Zimbabwean MFIs should prioritize adopting and improving information and communication technologies (ICT) alongside management systems that minimize staff expenses and overhead costs. This focus on operational efficiency can lead to improved financial performance.

Date

June 2024

Publisher

BUSE

Keywords

Operational Risk,

Microfinance Institutions,

Performance,

Supervisor

Mr. E. Mukonoweshuro