OPERATIONAL RISK MANAGEMENT AND ORGANISATIONAL PERFORMANCE

IN MICROFINANCES OF UGANDAA CASE STUDY OF PRIDE MICROFINANCE

ENTEBBE BRANCH

BY

LUGGYA JOSEPH BALIKUDEMBE

17BBAM0287

A RESEARCH REPORT SUBMITED TO THE FACULTY OF BUSINESS AND ICT IN

PARTIAL FULLFILLMENT OF THE REQUIREMENTSFOR THE AWARD OF A

DEGREE OF BACHELOR OF BUSINESS ADMINISTRATION AND MANAGEMENT

OF UNIVERSITY OF KISUBI

JULY, 2019
 DECLARATION

I, LUGGYA JOSEPH BALIKUDEMBE of the Faculty of Business and ICT, University of

Kisubi, do declare to the best of my knowledge that this report is my original work and has never

been presented to this University or any other Institution of Higher Learning for the award of a

Degree or any other academic award. Throughout the work, I have acknowledged all the sources

used in the compilation.

Researcher’s Signature: ……………………………………………………

Researcher’s name…………………………………………………………

Date of Submission: ……………………………………………………….

i
 APPROVAL

I certify that LUGGYA JOSEPH BALIKUDEMBE organized and wrote this report entitled

OPERATIONAL RISK MANAGEMENT AND ORGANISATIONAL PERFORMANCE IN

MICROFINANCES OF UGANDA using a case study of Pride Microfinance Entebbe branch

and has submitted with my approval as his research supervisor. This work is now ready for

submission to the Faculty of Business and ICT for the award of Bachelors Degree of Business

administration and management of the University of Kisubi.

Signature of Supervisor: ………………………………………………

Name of supervisor…………………………………………………….

Date: ………………………...………………………………….………

ii
 DEDICATION

I wish to thank the Lord God for blessing me with the gift of life and also granting me good
health to conduct this research exercise. I hereby dedicate this work to my parents, Mr. Kiguli
Vincent and Mrs. Kiguli Josephine for they bore me into this world and have supported from
then on until now. I further dedicate my work to my brothers and sister for their continued
guidance and support throughtout my academic journey. May God reward you abundantly.

iii
 ACKNOWLEDGEMENT
The lord is gracious and compassionate. Am thankful that he has kept safe thus far and has
enabled me complete this report successfully. Am indebted to a number of people who have seen
me strive up to this moment.

Words cannot describe how thankful I am for the gift of my parents, they have supported me
unceasingly and unwearyingly throughout my academic journey. Their persistent words of
encouragement and prayers have been a firm boulder on which I have always laid my worries.

My brothers Muggaga, Andrea, Kibuuka and my sister Allena, I couldn’t ask for better brothers
and sister for you have always been a fountain of advice and support throughout my academic
life.

My sincere gratitude goes to Mr. Lukwago Edward who has untiringly navigated me through the
process of compiling my research as my academic supervisor. I mostly acknowledge his
motivation and patience with me at crucial stages of my research right from proposal writing to
the final report. And to all my lecturers right from when I started this course am grateful and
always be assured of my sincere prayers.

I also thank all my friends especially Sr. Jane, Fr. Angello, Br. Dezy among others. Am grateful
for all your support. A special mention to Sr. NamyaloResty, I can’t ask for a better friend, you
have been a shoulder to fall back on academically, morally and spiritually, be blessed always.

Finally a vote of thanks goes to the management and staff of pride microfinance Entebbe branch
for accepting my request to undertake my research in their institution.

iv
TABLE OF CONTENTS

DECLARATION ....................................................................................................................... i
APPROVAL ............................................................................................................................. ii
DEDICATION ........................................................................................................................ iii
ACKNOWLEDGEMENT ...................................................................................................... iv
LIST OF TABLES ................................................................................................................ viii
LIST OF FIGURES ................................................................................................................ ix
ABBREVIATIONS/ACRONYMS ...........................................................................................x
ABSTRACT............................................................................................................................. xi
CHAPTER ONE .......................................................................................................................1
Introduction...............................................................................................................................1
1.1 Introduction .........................................................................................................................1
1.2 Background of the study .....................................................................................................1
1.2.1 Historical perspective .......................................................................................................1
1.2.2 Theoretical perspective ....................................................................................................2
1.2.3 Conceptual perspective.....................................................................................................3
1.2.4 Contextual perspective. ....................................................................................................5
1.3 Problem Statement ..............................................................................................................6
1.4 Specific Objectives. ..............................................................................................................7
1.5 Research Question ...............................................................................................................7
1.6 Scope of the Study ...............................................................................................................8
1.6.1 Geographical Scope ..........................................................................................................8
1.6.2 Content Scope ...................................................................................................................8
1.6.3 Time Scope ........................................................................................................................8
1.7 Significance of the Study .....................................................................................................8
1.8 Conclusion ...........................................................................................................................9
CHAPTER TWO .................................................................................................................... 10
LITERATURE REVIEW ....................................................................................................... 10
2.1 Introduction ....................................................................................................................... 10
2.2 Theoretical Review ............................................................................................................ 10
2.3 Conceptual Framework .................................................................................................... 11

v
2.4 Information systems and organizational performance. ................................................... 14
2.5 Human resource and organizational performance .......................................................... 16
2.6 Internal processes and organizational performance ........................................................ 17
2.7 Conclusion ......................................................................................................................... 18
CHAPTER THREE ................................................................................................................ 20
3.1 Introduction ....................................................................................................................... 20
3.2 Research Design ................................................................................................................ 20
3.3 Study Population ............................................................................................................... 21
3.4 Determination of the Sampling Size ................................................................................. 22
3.4.1 Research Respondents by Category and Sample .......................................................... 22
3.4.2 Sampling Techniques and Procedure ............................................................................ 23
3.5 Data Collection Methods ................................................................................................... 23
3.5.1 QUESTIONNAIRE ........................................................................................................ 23
3.5.2 Interviews........................................................................................................................ 24
3.5.3 Documentary Review ..................................................................................................... 24
3.6 Data Collection Instruments ............................................................................................. 24
3.6.1 Questionnaire.................................................................................................................. 25
3.6.2 Interview Guide .............................................................................................................. 25
3.6.3 Documentary Checklist .................................................................................................. 25
3.7 Data Quality ...................................................................................................................... 26
3.7.1 Validity............................................................................................................................ 26
3.7.2 Reliability ........................................................................................................................ 26
3.8 Procedure of Data Collection ............................................................................................ 27
3.9 Data Analysis ..................................................................................................................... 27
3.9.1 Qualitative Data Analysis ............................................................................................... 27
3.9.2 Quantitative Data Analysis ............................................................................................ 28
3.10 Measurement of Variables .............................................................................................. 28
3.11 Research ethical considerations ...................................................................................... 28
3.12 Limitation of the study .................................................................................................... 29
CHAPTER FOUR ................................................................................................................... 30
DATA PRESENTATION ANALYSIS AND INTERPRETATION...................................... 30

vi
4.0 Introduction. ...................................................................................................................... 30
4.1 Analysis of response rate. .................................................................................................. 30
4.2 Demographic characteristics of respondents .................................................................... 31
4.3 Findings according to the research objectives. ................................................................. 32
CHAPTER FIVE..................................................................................................................... 41
DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS. ..................................... 41
5.0 Introduction ....................................................................................................................... 41
5.1 Discussion of findings ........................................................................................................ 41
5.1.1 Relationship between information systems and organizational Performance of
microfinance institutions in Uganda. ...................................................................................... 41
5.1.2 How human resource management influences organizational performance of
microfinance institutions in Uganda. ...................................................................................... 42
5.1.3 Extent to which internal processes impact on organizational performance in
Microfinances of Uganda. ....................................................................................................... 44
5.2 CONCLUSION.................................................................................................................. 45
5.3 Recommendations of the study ......................................................................................... 46
5.4 Suggested Areas for further study .................................................................................... 48
REFERENCES ........................................................................................................................ 49
APPENDICES ......................................................................................................................... 52

vii
 LIST OF TABLES
Table 3. 1: Research Respondents by Category and Sample .................................................... 22

Table 4. 1 Analysis of response rate. ......................................................................................... 31

Table 4. 2 Gender of respondents. ............................................................................................. 31

Table 4. 3 Age of the respondents. ............................................................................................ 32

Table 4. 4 The relationship between information systems and organizational Performance of

microfinance institutions in Uganda. ......................................................................................... 33

Table 4. 5 How human resource management influences organizational performance of

microfinance institutions in Uganda. ......................................................................................... 35

Table 4. 6 Extent to which internal processes impact on organizational performance in

Microfinances of Uganda. ......................................................................................................... 38

viii
 LIST OF FIGURES

Figure 2. 1: Conceptual Framework .......................................................................................... 11

ix
 ABBREVIATIONS/ACRONYMS

AMA : Advanced Measurement Approaches

CVI : Content Validity Index
EVT : Extreme Value Theory
IT : Information Technology
Kris : Key Risk Indicators
MORE : Multinational Operational Risk Exchange
ORM : Operational Risk Management
MDI : Pride Microfinance Limited
SPE : Severity, Probability, and Exposure
SPSS : Statistical Package for Social Sciences

x
 ABSTRACT
The study was motivated by the persistent frauds, human errors, numerous customer complaints

among other issues in Pride microfinance which was interpreted as pointer of the institution

being faced with operational risks challenges which have affected its performance. The purpose

of the study was to understand the how operational risk management and organizational

performance are related, it looked at how information systems, human resource and internal

processes affect organizational performance as objectives. The study undertook a cross sectional

survey design. Data was collected using self-administered questionnaires and analyzed using the

Statistical Package for Social Sciences (SPSS V.16) and Excel software to generate descriptive

statistics.

The findings indicated that there were strong positive and significant relationships between

operational risk management and organizational performance. The findings from the statistical

analysis revealed that operational risk management is a significant predictor of organizational

performance.

In conclusion, in order for the microfinance institutions to realize effectiveness and efficiency in

their performance, management should work towards putting in place a favorable organizational

environment which does not promote operational risk as this will have a great impact on

organizational performance. In addition, to study the true nature and quality of operational risk

management and organizational performance, further studies should be done in different sectors

other than the finance sector so that comparisons can be drawn and improvements planned for.

xi
 CHAPTER ONE

Introduction

1.1 Introduction

This introductory chapter addressed the background description, before venturing into the

statement of the problem, the objectives of the study, the research questions, hypotheses,

conceptual frame work, study significance, justification and operational definitions of selected

terms and concepts.

1.2 Background of the study

This was a study on operational risk management and staff performance in microfinance

institutions of Uganda using Pride microfinance Entebbe as a case study.The background of the

study was broken into four perspectives: the historical, conceptual, theoretical and contextual

perspectives

1.2.1 Historical perspective

A risk is a probability or threat of damage, liability, loss, or any other negative occurrence that is

caused by external or internal vulnerabilities, and that may be avoided through preemptive

action.

The term risk management was coined as far back as the early 1950’s when insurance managers

began to identify themselves as risk managers and began practicing what they called risk

management activities (Simister, 2003). Covello and Mum power (1985) urge that risk

management has existed for centuries, beginning as far back as the Code of Hammurabi.

Although according to them it may have been termed differently. Furthermore, Trammell (2004)

captures this evolution in his statement that the goal of risk management is to protect workers,

1
the community, the environment, customers, and the organization’s physical assets. In other

words, a valid risk management strategy can protect the organization and its environment.

According to Albert (2008) a good risk management process the following steps; risk

identification, risk analysis, risk response and planning and risk monitoring and control and for

the process to be successful it should be effective and progressive based on its validity.

The term operation risk came to limelight in the European solvency twodirective for insurers in

the late 1960’s and was later emphasized and practically put to use by the Basel committee on

banking supervision before being adopted by other institutions inclusive of

microfinancesworldwide.

1.2.2 Theoretical perspective

This study was modeled on the theory of Self- Efficacy as advanced by Albert Bandura (1977).

Bandura (1977) suggests that self- efficacy theory and many other theories of motivation such as

Self- worthy theory, Self-determination theory, and Self-verification theories can be used to

analyze risk management behavior and how it affects the staff performance. As adopted in this

study, the self-efficacy theory holds that risk management processes influence staff performance.

That, steps of the International standardization organization (ISO: ISD 2000) process that

includes risk identification, risk analysis, risk response and planning and risk monitoring and

control influence staff performance. The details of self-efficacy and action theories were given in

details in chapter two of this study.

The concept of operation risk management is the identification, assessment and prioritization of

risks defined as the effect of uncertainty on objectives, whether positive or negative followed by

coordinated and economical application of resources to minimize, monitor and control the

2
probability and/or impact of unfortunate event. Risks in channel can arise as a result of project

failures (at any phase in development, production, or sustainment life-cycles), accidents, natural

causes and disasters as well as deliberate attack from an adversary or events of uncertain root-

cause.

The term operational risk management (ORM) was defined as a continual cyclic process

which includes risk assessment, risk decision making, and implementation of risk controls,

which results in acceptance, mitigation, or avoidance of risk. ORM is the oversight

of operational risk, including the risk of loss resulting from inadequate or failed internal

processes and systems; human factors; or external events. Unlike other type of risks (market risk,

credit risk, etc.) operational risk had rarely been considered strategically significant by senior

management.

1.2.3 Conceptual perspective.

This study was examined by the two broad concepts of Operational Risk Management and

organizational Performance. Loader (2007) defines Operational Risk as the risk associated with

human error, systems failures and inadequate procedures and controls during the processing of

business related transactions and the loss of reputation by failure to implement the processing

correctly.

The term operational risk management (ORM) was defined as a continual cyclic process

which includes risk assessment, risk decision making, and implementation of risk controls,

which results in acceptance, mitigation, or avoidance of risk ( Amin E. 2005)

3
According to Moore et al (1990) Operational Risk Management (ORM) extends beyond the

financial aspects of risk, to include inefficiencies or failures of the people, processes and systems

that are essential to survival and functionality of an organization.

Brumbach, (1988) as quoted in Armstrong (2004), further contends that performance refers to

both behaviors and results, and adjusting organizational behaviors and actions of work to achieve

results or outcomes. Behaviors are outcomes in their own right and reactions to the product of

mental and physical effort applied to tasks.

Daysonet al., (2006) defined performance as the efficiency with which a firm uses its resources

in generating revenues. Quach, (2005) defines performance as a proxy for revealing the health of

a firm in the same industry. There are various ratios which are used for measuring the financial

performance of a firm.

Jeynes, (2002) holistically analyses organizational performance management as a process that

establishes a shared work force and understanding towards what is to be achieved at an

organization level and aligning the organizational objectives with the employees' agreed

measures, skills and competency requirements.

Operational risk management and organizational performance, Rasid et al (2011), on his study

supports the theoretical argument brought to light by Soin (2005), Williamson (2004) and Collier

et al., (2004) that operational risk management in an organization influences the organization

performance, through enhanced operational risk management practices. Rasid et al., (2011)

further revealed that risk analysis of internal processes, information systems and human resource

was allegedly the largest contributor towards management of operation risks. This means that

although there are other determinants of performance not included in the study, the

4
microfinances can improve their performance by focusing on developing strong operational risk

management policies and integrating risk management in the process of setting achievable

organizational objectives.

1.2.4 Contextual perspective.

The research was carried out in Pride microfinance Entebbe branch. It’s located in the heart of

Entebbe along Entebbe road, Metropole House Plot 8-10 Entebbe Road. It’s in the microfinance

industry.

Pride Microfinance Limited was founded in 1995 as a non-governmental organization with the

support of the Norwegian Agency for Development Cooperation. In 1999, it was incorporated as

a limited company and changed its name to Pride Africa Uganda Limited. In 2003, the Uganda

government acquired 100 percent shareholding in the enterprise, changing the name to Pride

Microfinance Limited Uganda

Its major objective was to offer credit to the poor, targeting those in the agricultural sector. Pride

microfinance is one of the fastest growing microfinance institution in Uganda with over 700,000

depositors and over 90,000 borrowers. It pioneered that microfinance in the banking sector,

serving mainly micro and SME’s. It is actively involved in Agricultural lending, the backbone of

Uganda’s economy. Pride microfinance offers products such as saving where clients secure and

can easily access their money whenever they need it. In this case, people open up accounts as

individuals or groups and companies can do the same. It offers fixed deposit accounts and also

offers loan products with minimum loan mount of 100m that include business loans for those

who wish to start up business or improve on their existing businesses.

5
The organization acknowledges that through the information systems, human resource and

internal processes, the institution is prone to numerous operational risks. It is because of this that

they put in place simple standardized and consistent procedures for cash transactions, effective

internal controls, use of computer system enforcing human resource policies among others.

1.3 Problem Statement

Operational risk management in financial institutions is a source of competitive advantage if it’s

given much attention (Car cello, 2002). It leads to reduction in transaction risk, fraud risk,

market risk among other risks. Over the years pride microfinance performance has dwindled

since loan payment is seen to be always late by over ten day and many times people default since

they normally to give in bankable collateral, Over the years Pride Microfinance has opened

additional client service points to expand market base, made operational processes reengineering

to increase efficiency and reduce costs and also moved from a manual information system to

software to capture data for reporting and control purposes (Pride Microfinance Report, 2009).

The microfinance put in place many measures to mitigate such risks and they include; simple

standardized and consistent procedures for cash transactions, effective internal controls, use of

computer system enforcing human resource policies among others. However, according to Pride

microfinance manual (2017), the effects of poor operational risk management such as errors,

fraud, inconsistent procedures are still in existence and are affecting the performance of the

institution greatly. If these risks are improperly assessed and un-prioritized, time can be wasted

in dealing with risk of losses that are not likely to occur and also spending too much time

assessing and managing unlikely risks hence diverting resources that could be used more

profitably. This situation still puzzles the researcher thus prompting him to conduct further

6
investigation on operational risk management and performance of micro finance institutions in

Uganda taking a case of pride microfinance

1.4Specific Objectives.

The study was guided by the following objectives:

1. To establish the relationship between information systems and organizational

Performance of microfinance institutions in Uganda.

2. To examine how human resource management influences organizational performance of

microfinance institutions in Uganda.

3. To identify the relationship between internal processes and organizational Performance of

microfinance institutions in Uganda.

1.5Research Question

The following research questions were used in the study:

1. What is the relationship between technology systems and organizational Performance

of microfinance institutions in Uganda?

2. What is the relationship between human resource management and organizational

Performance of microfinance institutions in Uganda?

3. To what extent does company internal processes affect organizationalPerformance in

microfinance institutions in Uganda?

7
1.6 Scope of the Study

1.6.1 Geographical Scope

Geographically, this study covered responses from the pride microfinance branch in Entebbe

located along Entebbe road, Metropole House Plot 8-10 Entebbe

1.6.2 Content Scope

In terms of the content scope, this study specifically sought to determine the relationship

between human resource management, technology and internal processes and staff performance

in microfinance institutions in Uganda.

1.6.3 Time Scope

The study considered information relating to the last ten years (2009-2019). This is because this

time period contained relevant information about risk management.

1.7 Significance of the Study

The study is expected be beneficial to the management of financial institutions and its clients so

that appropriate decisions are made to improve overall performance of financial institutions. The

study will be used as an initiation for those who are interested to conduct a detailed and

comprehensive study in relation to operational risk management or other related topics.

The study is expected to yield information contributing to valuable knowledge to the field of

operational risk management in general. It is the only study that has focused on operational risk

management and staff performance in Ugandan microfinance institutions. As such, it is expected

to produce hitherto unavailable knowledge on this subject. It should therefore form a useful

material for reference to other researchers and other readers in general. This study is intended to

8
lend a hand in highlighting the relationship between operational risk management and staff

performance. The results of this study could be used by management of financial institutions and

other stakeholders to design appropriate strategies to make Operational Risk Management better.

This study is also considered significant as it leads to the award of bachelor’s degree in Business

Administration and management to the researcher.

1.8 Conclusion

A number of studies have been carried out on operational risk management and staff

performance. It is against this back ground that this research proposal offered to establish the

relationship between operational risk management and staff performance in the microfinance

institutions. The findings may influence decision making which may lead to improvement of the

performance of microfinance institutions.

9
 CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter reviewed literature related to Operational Risk Management and organizational

Performance in microfinance institution taking a case study of Pride microfinance. The major

sources of literature that wereused included text books, journals, approved proposals and

dissertations, materials presented in workshops relevant to the topic.The chapter also presented

the theoretical literature review, conceptual review, the actual literature review and summary of

literature review. It will further discuss the literature of the objectives, one after the other.

2.2 Theoretical Review

This study was modeled on the story of Self-Efficacy advanced by Albert Bandura (1977).

Self – efficacy theory and many other theories of motivation such as self – worthy theory, Self-

determination theory, and Self-verification theories can be used to analyze risk management

behavior and how it affects the staff performance. Bandura (1977) further opines that good risk

management should help build a sense of Self- efficacy.

Furthermore (Bandura, 1997; Stajkovic&Luthans, 1998), suggest that Self-efficacy, the belief

that one can execute an action well and can easily be used to construct the motivational domain

which is highly relevant for performance. Speier&Frese (1997) specifically cited the

relationship between self-efficacy and performance especially task performance as well as to

contextual performance such a personal initiative perspectives on performance.

10
2.3 Conceptual Framework

The conceptual diagram depicted operational risk management process having a relationship

with staff performance as demonstrated in Figure 2 below:

Independent variables dependent variables

Operational Risk Organizationalperformance
Management
 Internal processes Low loan default level
 Human resource
Increased profits
 Information
technology Growth

Culture

Social media growth

Corporate accountability

Figure 2.1: Conceptual Framework

The framework portraited that the status of internal processes, human resource and information

technology directly affects the organisational performance.

Frese, Teng&Wijnen (1999) contend that developing ideas and suggestions within an

organizational suggestion system as well as involving staff can lead to effective organizational

performance in any established organization.

Subsequently, the study was further be modeled by the action theory approach (Frese&Zapf,

(2004) focuses on the sequential aspects of an action, while the structural point of view refers to

its hierarchical organization. From the process point of view, goal development, information

11
search, planning, execution of the action and its monitoring, and feedback processing can be

distinguished Frese and Sonnentag (2000) derived propositions about the relationship between

these various action process phases and performance. They gave an example of respect to

information search and hypothesized that processing of action-relevant, important but

parsimonious and realistic information performance concepts and performance theory is crucial

for high performance.

As adopted in this study, the self-efficacy theory holds that risk management processes influence

organizational performance. That, steps of the process of this theory include risk identification,

risk analysis, risk response and planning and risk monitoring and control influence staff

performance. However, in adopting the self-efficacy theory for this study, the researcher was not

ignorant of its short comings. To produce the best risk management for instance, self-efficacy

theories suggests several strategies such as work incrementally, work in groups, work with

negative people among others. This is a task which is not easily achieved especially where it

involves working with negative people is involved. One needs to note that like any other, this

theory does not go without criticisms and it is criticized for not looking at individual person traits

in influencing relationships.

Operational Risk Management

Changes in markets, techniques, technologies, and products have altered the landscape of

operations and fueled the explosive development of operational risk management. The regulators

of financial and public companies are demanding a far greater level of disclosure and awareness

by directors about the risks they manage and the effectiveness of the controls they have in place

to reduce or mitigate these risks. According to Goodhart, (2001), an operational risk is, as the

12
name suggests, a risk arising from execution of a company's business functions. It is a very broad

concept which focuses on the risks arising from the people, systems and processes through which

a company operates. It also includes other categories such as fraud risks, legal risks, physical or

environmental risks.

Operational risk is perhaps the most significant risk organizations face. Many financial

institutions have spent tens of millions of dollars trying to develop a robust framework for

measuring and managing operational risk (Hoffman, 2002). Yet, in spite of this huge investment,

for many firms developing a viable operational risk management (ORM) program remains an

elusive goal. A lot has to do with the way organizations have approached this problem and the

underlying assumptions they have made. Many financial firms believe that operational risk is not

a material risk (Hussain, 2000). This can be seen in the low capital charge allocated to this risk

relative to other risks. Many view operational risk as just back-office operations risk, and

executives generally believe that ORM is fundamentally about managing control weaknesses in

the processes at a tactical level (Marshall, 2001). These views have largely shaped the funding

and staffing decisions, which have in turn affected resource allocation and methodology

development.

The recent wave of losses in the financial services industry has forced many senior executives to

rethink their overall approach to risk management. Many now realize that operational risk is a

much more important risk than it was originally thought to be. As a result, some are considering

a new approach to managing this type of risk (Al-Tamimi, 2008). Indeed, the effectiveness of

operational risk management has been impeded by a common failure to truly embed operational

risk into the overall management of risk and control.

13
According to Abdou, (2009) management of risks is important to financial institutions because

banking operations affect and is affected by the economic and social environmental risks that

they face. Banks face a number of risks like credit risk, liquidity risk, foreign exchange risk,

market risk, and interest rate risk among others (Abul, 2009). Kanwar (2009) identified that

volatility of global markets, technological advancements, innovative new financial products and

changing regulatory environments as the factors that have it increasingly important to identify,

measure, monitor and manage a financial institutions’ risks.

Operational risk is manifested in the form of “mistakes, incompetence, criminal acts, qualitative

and quantitative unavailability of employees, failure of technical systems, and dangers resulting

from external factors such as external fraud, violence, physical threats or natural disasters as well

as legal risk” (Sabastian, 2008). However data and measurement of operational risk are key

challenges to its management.

2.4 Information systems and organizational performance.

Information systems play a vital role in microfinance as it helps the MFI to track, analyze and

report on their operations and various performance objectives such as outreach and profitability.

Such reports are useful to management, donors and regulators (CGAP, 2005). Growth and

expansion or advancement of microfinance institutions often poses various challenges of

monitoring, financial management of incomes and expenses. Okeeffe and Fredrick, 2002 assert

that a management information system facilitates the fundamental changes in the institution

through information availability without interfering with the microfinance activities.

Orr (2000) observes that if there is a single key to survival of business in the 1990s and beyond,

it is being able to analyze, plan and react to changing business conditions in a much more rapid

14
fashion. To do this, top managers need information more than ever before. In the microfinance

sector, an institution that develops as system capable of producing accurate, timely and

comprehensive information on operations, especially the loan portfolio, will strengthen its

financial performance and expand its clients reach (Waterfield and Ramsing, 1998).

Methodological issues, staff development, and even financing are frequently not proving to be

the critical constraints to growth. Rather, an institution’s ability to track the status of its portfolio

in a timely and accurate manner is in many cases the difference between success and failure of

the lending and savings operations, and, therefore, of the institution (Ledgerwood, 1999).

Ferramd and Havers, 1999 explain that information is one of the central problems of

microfinance and that its significance is made it complex as MFIs scale up with increasing layers

of management, all depending on the appropriate flow of information to make decisions at their

various levels.

Information Systems have enabled growth and transformation of operations of Microfinance

Institutions (Water and Ramsing, 1998). As customer numbers grow to several thousands and

beyond, microfinance managers lose their ability to maintain personal contact for information

with what is happening at the field level which in turn affects their portfolio and financial

performance (Omasaja, 2007).

Okeeffe and Fredrick (2002) explain that transformation places new demands on the

microfinance institutions in terms of its ability to centralize information from different operating

locations. Regulatory reporting requirements and liquidity management requires Head Office to

be aware of the position and performance of their branches with greater frequency and reliability.

15
Waterfield and Ramsing (1998) emphasize that for a microfinance institution to perform

efficiently and effectively, the better its information, the better it can manage its resources. This

is supported by Ledgerwood (1999) who fronts that good management information systems can

improve work of field staff, enabling them to better monitor their portfolios and provide better

services to an increasing number of clients. It enables supervisors to better monitor their areas of

responsibility, pinpointing priority areas that most require attention and also helps senior

management to better orchestrate the work of the entire organization and make well informed

operational and strategic decisions by regularly monitoring the health of the microfinance

institutions considering a set of well-chosen reports and indicators.

According to Mainhart (1999), information lies at the very heart of microfinance. Management

Information Systems maintain large amounts of crucial business data, from basic client

information to detailed analysis of portfolio statistics. They act as a conduit through which raw

data becomes useful and usable information which enables successful management of a

microfinance Institution.

2.5 Human resource and organizational performance

According to Pier (2006), many organizations have increasingly recognized the potential for

their people/human resource to be a source of competitive advantage. Creating competitive

advantage through people requires careful attention to the practices that best leverage these

assets such practices include recruitment, training, remuneration among others. Employees and

how they are managed is becoming more important because many other sources of competitive

success are less powerful than they used to be. This is essential in developing different frame of

reference for considering issues of human resource policy and strategy. While traditional sources

of success such as product quality can still provide competitive leverage, an organization’s

16
human resources are more vital for its sustainability. This change in the mindset of executive

decision-makers has spurred an increasing body of academic research attempting to reveal a

relationship between an organization’s HR practices and overall organizational performance.

Insufficient human resource or practices can lead to many operational risks and in this work the

researcher will try to find out how managing such risks human resource related operational risks

can affect organizational performance in microfinances taking a case study of Pride

microfinance.

Risks associated with human resources arise out of Errors, Violation of Internal regulations,

Employee Responsibility, Lack of key staff Organizational structure and Wrong actions.

Linking human resource with organization’s strategic goals is key to improving business

performance and developing organizational culture that yields innovation, flexibility in turn

builds a competitive advantage (Teena& Sanjay, 2014).

Continuous loss of human resource due to movement of staff to competitors this leads to profit

reduction, increased recruitment and training and disruption of existing staff (Lengnick-Hall et

al., 2009). All these lead to decline in organizational performance.

It’s for this reason that organizations should undertake operational risk management so as to

reduce on the effects of the operational risks that come with human resource management.

2.6 Internal processes and organizational performance

Internal processes of a microfinance institution include loan appraisal, disbursements, data

recording and reporting, cash handling, auditing among others.The organization is concerned

with implementing and upholding a system of strict rules and procedures (Patterson et al., 2005)

17
A company’s strength is generally a reflection of how well it is run. In today’s economy, when

so many companies are experiencing financial challenges, it behooves them to look at ways to

improve internally.Crevani, Palm and Schilling (2009) for example, have shown that a more

formalized process can contribute to increased speed of new service development, In other

words, the organisational objective is to work smarter and be, or become, more efficient. This

includes, for example, how effectively they manage their business processes and how they

streamline and automate their workflows. While these two areas have become increasingly more

important to understand when faced with employee cutbacks or lower revenue, they also

represent excellent opportunities to improve performance. Automating workflow and business

processes also will have an immediate impact on the bottom line.

Management theorist Peter Drucker believes that process improvements transform business and

lead to innovation and that they represent "the change that creates a new dimension of

performance" for organizations. Business process management (BPM) empowers companies to

align their internal processes so that they provide more value to both their internal and external

customers and better fulfill the customers' needs. Well-designed business processes, moreover,

become increasingly valuable in the competitive industry.

Yu and Wu (2009) found that stability traits such as a firm's mission, consistency in internal

processes, and normative integration, were related to its profitability and overall organizational

performance.

2.7Conclusion

From the literature reviewed, the researcher identified major gaps from the studies that showed a

few authors have had little studies in this area of operational risk management even though few

18
were conducted in commercial institutions such as microfinances. The fact that there is scanty

literature in this area especially regarding the relationship between operational risk management

and organizational performance particularly on how it impacts on the performance of the

individuals in a given organization showed a big gap in most of the studies reviewed. It is

against this background that the researcher found it appropriate to investigate the relationship

between operational risk management and organization performance. Therefore it’s important for

organizations to understand how proper operational risk management can influence

organizational performance

19
 CHAPTER THREE

METHODOLOGY

3.1 Introduction

The study was aimed at establishing the relationship between Operational Risk Management

(ORM) and Staff Performance. This chapter presented the research design, study population,

sample size and selection, sampling techniques and data collection instruments. The chapter

further presented procedure of data collection, data analysis and measurements of variables.

3.2 Research Design

Orodho (2003)defined a research design as the scheme, outline or plan that is used to generate

answers to the researchproblems. A research design can be regarded as an arrangement of

conditions for collection and analysis of data in a manner that aims to combinerelevancy with the

research purpose. It was the conceptual structure within which research is conducted. It

constitutes the blueprint for collection, measurement and analysis of data. (Kothari, 2003).

This study was conducted through a cross sectional survey design, under this design different

people who differ on one key characteristic at one specific point in time but possess similar other

characteristics are interviewed. This was useful in obtaining information on the current status of

the phenomena in order to describe what exists. This method was also justifiable as a means of

investigating the relationship between variables which sought to determine changes of time.

This design was further used to describe the nature and pattern of the study where both

qualitative and quantitative data was collected and analyzed. The study employed both

qualitative and quantitative approaches. Qualitative approach was justifiable as it helped in the

generation of non-numerical data which helped the researcher to gain a deep understanding of

20
the organization rather than the surface description of a large sample. While quantitative

approach on the other hand was useful for generating numerical data or information that can be

converted into numbers. Both approaches are considered useful as they enrich the study

methods. (Kisilu, 2006).

Quantitative and qualitative approaches were adopted in this study simply because the former

was expected to enhance the understanding of the meaning of numbers whereas the latter

wasexpected to give precise and testable expression to qualitative ideas. Furthermore,

quantitative approach was used to generate the empirical statistical data for analyzing the

relationship between operational risk management and organizational performance in pride

microfinance. On the other hand,the qualitative approach was used to explore deeper the

feelings and understanding of the respondents on operational risk management and

organizational performance in pride microfinance.

3.3 Study Population

A population means a group of individuals, objects or items from which samples are taken for

measurement; for example, a population of students. Population refers to an entire group of

persons or elements from which the sample is taken (Kombo, 2006).

The target population in focus included five senior administration officers, 10 Risk management

team. This category of respondents were selected as they are the key players in the running of

the Microfinance and hence were expected to be well conversant with the institution. Among

other respondents who participated in the study were 28 staff members and 38 customers,

categories were selected in order to ensure the different viewpoints about operational risk

management and staff performance in Pride microfinance.

21
3.4Determination of the Sampling Size

Sampling is the procedure a researcher uses to gather people, places or things to study. It is the

process of selecting a number of individuals or objects form the population such that the selected

group contains element representatives of the characteristics found in the entire group

(Orodho&Kombo, 2002).

This study employed purposive and convenient sampling techniques respectively as shown in

table 1 below.

A sample size of 100 respondents was determined using statistical tables of Morgan (1970) as

cited by (Amin, 2005). This included various categories as specified in table 1 below:

3.4.1 Research Respondents by Category and Sample

Table 3.1: Research Respondents by Category and Sample

Category Respondents Accessible Sample (S) Sampling

Population (N) Techniques
1. Senior administrators 05 05 Purposive
2. Risk Management team 10 15 Purposive
3. Staff members 28 33 Convenient
4 Customers 35 57 Convenient
Total 78 100
As presented in table 1, four categories of respondents were selected. Five were selected from

five using purposive sampling in the category of senioradministrators, and 10 were selected from

15 purposive sampling from the risk management team, 78 respondents will be selected from

100. Krejcie and Morgan’s table guided the study in arriving at the number of the selected

respondents.

22
3.4.2 Sampling Techniques and Procedure

Purposive was used to select five senior administrators and 10 members of the risk management

team to be interviewed. The researcher chose this technique because the respondents were

expected to be knowledgeable and having a long experience in the microfinance matters.

Convenience sampling was used to select 28 staff members and 38 customers who were expected

to participate in the research. The researcher chose this sampling technique because it

necessitated the researcher to meet the respondents at their own convenience and also to ensure

that this sample is an accurate representation of a large group. (Amin, 2005).

3.5 Data Collection Methods

This was guided by the nature of the problem under investigation and applied both primary and

secondary methods to collect data from different sources. Primary data was collected from

respondents through the use of questionnaires and interviewing as secondary data was collected

through documentary review. The study used questionnaires to collect quantitative data because

they are generally acceptable instruments (Punch, 2006, p. 52 &Bamanyisa, 2010). The

interviews were conducted among key informants. Documentary review was used to collect data

which was used to support the empirical findings of the study.

3.5.1QUESTIONNAIRE

This approach was guided by the consideration that questionnaire methods of gathering

information where questions/items to which a respondent is expected to react, are usually in

writing. Mugenda&Mugenda (1999) contend that self-administered questionnaires enable

respondents to answer without bias of the interviewer; respondents can also be reached easily

and conveniently. The choice is justified by the fact that it is the best single tool for collecting

23
data from large samples and useful for repeated studies, easy to quantify and summarize results,

quickest least costly way of gathering information. (Kane, 1995).

3.5.2 Interviews

This method comprised of personal interviews with individual’s belief to hold important and

crucial information relevant to the objective of the study. This approach was guided by the

consideration that interview method of gathering information can be used to suggest assertions

and as a means of following up of some interesting and unexpected behavior (Silverman, 2001)

using this interview method, qualitative data was collected from key informants and top

administrators. Interviews were also expected to provide an opportunity to the researcher to

probe the respondents in case of any ambiguities in the responses. This method generally

supplements data obtained by other research methods utilized by the researcher.

3.5.3 Documentary Review

Secondary data was obtained from the microfinance reports, budgets and quarterly reports

among other relevant documents. Data was also obtained from studies, text books, government

publications and journals. This method is expected to generate more information about the

research subject (Sekaran, 2003).

3.6 Data Collection Instruments

This was designed after the approval of the research proposal (Kothari, 1990 & Kane, 1995).

The data collection instruments for this study were questionnaires; documents check list and

interview guide.

24
3.6.1 Questionnaire

Questionnaires were used because they are less expensive to administer, eliminate potential

interviewer bias, and respondents were expected to express their views freely with less pressure.

Questionnaires were also expected to help the researcher to standardize responses and time will

be saved and was expected to make it easy to present data by way of categorizing and tabulating.

They were also considered as the most appropriate instruments in collecting data because of the

big number of respondents’ views and attitudes concerning the objectives of study. Structured

questionnaires were also used in order to compare among different groups of respondents and

besides the response rates which are high (Amin, 2005).

3.6.2 Interview Guide

An interview guide is a set of questions that the researcher asks during the interview. The

researcher was expected to design an interview guide which was to be used during the interview

of the key respondents who included administrators and some of the stakeholders who may not

know how to read and write. The researcher posed questions intended to lead the respondents

towards giving data to meet the study objectives and also probed the respondents in order to seek

clarification about responses provided. Semi structured interview guide were used for the top

administrators to stimulate them into detailed discussion of operational risk management and

organisational performance.

3.6.3 Documentary Checklist

A documentary review is a systematic process in which a researcher analyses the available

literature in form of reports and files for the purposes of retrieving the necessary information

relating to the subject matter (Kakinda, 1990). The researcher made use of available data by

reviewing the microfinance reports, review of budgets and data from the Planning Unit.

25
Documentary review was used in order to supplement the primary sources of data. A

documentary checklist was used for collecting the secondary data.

3.7 Data Quality

Data quality was maintained through carrying out validity and reliability test.

3.7.1 Validity

Validity refers to the appropriateness of an instrument in measuring whatever it is intended to

measure (Amin, 2005). This study utilized triangulation to ensure validity of research findings

prior to the administration of the research instruments. This instrument was checked by experts

including the supervisor of the researcher. Content validity ratio was used to calculate the

Content Validity Index, using a formula below.

CVI = Total Number of items rated by all judges

Total Number of items in the instrument

A Content Validity Index of 0.7 and above according to Amin, (2005) qualified the instrument

for the study.

3.7.2 Reliability

Reliability is the level of internal consistency or stability of the measuring device over time,

(Amin, 2005). The reliability of data collection instruments was piloted in Entebbe region and

was later modified. Most items should reached a coefficient of at least 0.7 questions with

validity and reliability coefficient of at least 0.7 which is accepted as valid and reliable in

26
research. According to Amin (2005), a minimum correlation coefficient of 0.7 is required for an

instrument to be reliable.

3.8 Procedure of Data Collection

At the onset of data collection, the researcher sought permission of Pride microfinance

administration to help access the employees in place of work and their residences. Each

questionnaire contained an opening introductory letter requesting for the respondent’s

cooperation in providing the required information for the study. The respondents were further

assured of confidentiality of the information provided and that the study findings were to be used

for academic purposes only and necessary corrective measures in the microfinance. Respondents

were further assured of their personal protection and that they have authority to refuse or accept

to be interviewed or participate.

3.9 Data Analysis

Both qualitative and quantitative data was collected and analyzed. Information gathered from

the interview schedules and checklist was edited for error. Thematic analysis of data was

performed by translating the narratives into a set of equivalent statements (themes) paying

attention to actual words interviewees used. Secondary data further provided evidence and

clarity on the situation on the ground. Triangulation method of analysis was used to enable

evaluators come up with appropriate conclusions and recommendations.

3.9.1 Qualitative Data Analysis

Data collected was carefully cleaned, sorted, categorized, edited to erase errors and put into

themes. As the researcher edited, scrutiny was expected to be done to check the error, ambiguity

and omissions which were to be vital in securing accuracy and uniformity on respondents. The

27
data was to be analyzed for accuracy, consistency and completeness of the information. Content

analysis was done manually and consisted of reading and re-reading the scripts looking for

similarities and differences in order to identify themes and categories patterns and trends which

were identified and interpreted according to the study objectives.

3.9.2 Quantitative Data Analysis

After the data was collected, the researcher cleaned, edited for completeness, accuracy and

uniformity, elimination of errors, double checking for missing or inconsistency entries and

comprehensiveness. The data was coded-attributing to a number of pieces of data and the data

was then organized for easy understanding and data was thenpresented using SPSS and excel

software. The data was then developed into descriptive statistics with the help of the SPSS and

excel software. Then the researcher generated percentages and frequencies which were used to

make comparisons from responses.

3.10 Measurement of Variables

The variables were measured using nominal and ordinal types of measurements. The

questionnaires specifically for respondents were measured on a five interval Likert Scale, the

level of agreement was ranked as strongly agree, which will reflect more agreement than just

agreement or strongly disagree compared to just disagree. Ordinal Scale as measurement of

variables not only categorized the elements being measured but also ranked them into some

order.

3.11 Research ethical considerations

Permission is required from the relevant authorities, after which the researcher will visit the

schools to establish a rapport and explain the purpose of the study. He will then make

28
appointments for the administration of the research instruments and data collection. All

participants shall be reassured that what they will disclose is to be treated with utmost

confidentiality and will never to be used against them.

3.12 Limitation of the study

The study will be limited by time and financial constraints as the costs involved will be high.

Denial of information by the respondents for security reasons. The data will be collected from a

small population of the organisation in the microfinance.

29
 CHAPTER FOUR

DATA PRESENTATION ANALYSIS AND INTERPRETATION

4.0 Introduction.

This chapter presents the data, analyses and interprets findings of the study. The responses

relating to the study were obtained. The descriptive statistics regarding the biographical

information of the participants was also presented. Data was collected by use of interview guide

and questionnaires from the administrators, general staff as well as the clients. This chapter also

contains a tabular form which explains the findings of the objectives of the study which are;

1. To establish the relationship between information systems and organizational

Performance of microfinance institutions in Uganda.

2. To examine how human resource management influences organizational performance of

microfinance institutions in Uganda.

3. To identify the relationship between internal processes and organizational Performance of

microfinance institutions in Uganda.

4.1 Analysis of response rate.

The study targeted a sample size of 78 respondents. A total of 78 questionnaires were printed

and distributed to the sample. The researcher encouraged all the respondents to answer all the

questions. Fifteen (15) members of the sample were purposively selected for the interviews.

Presented in table 1 below is the response rate of the study.

30
Table 4.1Analysis of response rate.

DETAILS NUMBER

Total of questionnaire given out 78

Returned questionnaires 67

Key Informant interviews made 15

Source; Field data, 2019

The table above shows a return rate of 85.9%. This high return rate was mainly due to the

commitment of the researcher in following up the respondents throughout the time for data

collection. Mugenda and Mugenda (2003) asserts that a response rate of 50% and above is

adequate for analysis and reporting data and thus this response rate was believed to be sufficient

and demonstrative for the study.

4.2 Demographic characteristics of respondents

This section presents the demographic features of the respondents in terms of gender and age.

Table 4.2 Gender of respondents.

Details Frequency Percent

Male 28 41.8

Female 39 58.2

Total 67 100.0

Source; Field data, 2019

31
The findings shown in table 4.2.1 above indicate that 58.2%, which is the majority, were female

because the females were more willing to cooperate than the males. However the researcher

endeavoured to capture the views of at least 41.8% males.

The views generated reflected commonality and similarity of the views in regards to the

variables under question. This was the indicator that both males and females held more or less

similar views on the variables under the study and such the slight difference in number did not

bring in any sharp discrepancies.

Table 4.3Age of the respondents.

Respondents Frequency Percent

15-25 09 13.4

26-32 25 37.3

33-50 33 49.3

Total 67 100.0

Source; Field data, 2019

As per the above table, the views of both the youths and adults were well captured because

13.4% of the respondents were aged between 15-25 and 37.3% aged between 26-32 years. These

two categories show that 50.7% were youths and 49.3% were adults which shows that views of

both youths and adults were well captured in this study.

4.3 Findings according to the research objectives.

The study objectives had the following findings that are discussed below;

32
Table 4.4 The relationship between information systems and organizational Performance
of microfinance institutions in Uganda.

Responses Strongly Agree Strongly Disagree Not

Agree Disagree Sure
1 Does the institution have the necessary 11 26 14 03 13
technologies and infrastructure needed 16.4% 38.8% 20.9% 4.5% 19.4%
in its line of business
2 Is the staff well trained in the use of the 16 29 07 10 05
available technologies without making 23.9% 43.3% 10.4% 14.9% 7.5%
many errors
3 Is there consistency in the use of 17 39 - 05 06
systems data in managing clients affairs 25.4% 58.2% 07.5% 08.9%
4 Internal procedures have been put in 27 22 02 07 09
place to ensure that the same degree of 40.3% 32.8% 03% 10.4% 13.4%
cross-checking is usedon all
transactions.
5 Is there effectiveness and security of the 34 27 - - 06
management information systems e.g. 50.7% 40.3% 09%
backups
Source; field data, 2019

The table above analyses the first objective that sought to establish the relationship between

information systems and organizational Performance of microfinance institutions in Uganda. The

respondents were asked if the institution has the necessary information management

infrastructure and the response was averagely positive with a total of over 55% agreeing that the

institution has the adequate technology but the researcher was left baffled as to why over 25%

claimed the institute didn’t have the adequate infrastructure and technologies. This prompted

theresearcher to further ask as to why such is the case and many replied that the existing

technology and infrastructure is effective but not up to date;

33
“The microfinance has very old computers and many of the staff have just learnt how to use them

hence their speed is no different from when they were using papers for all their work,” replied a

one respondent.

When the respondents were asked if the staff was well trained in the use of the available

technology, many 67% agreed that the staff was well trained to use the available technology

which is just as vital on the overall performance of the organization because then the employees

have the capacity to identify, and track risks that relate to the management of the information

systems. A fair percentage also claimed that the staff was not quite well trained and time and

again they delay clients because they are not well conversant with what to do and how to go

about the system.

Regarding the consistency in use of the information system, the respondents agreed that there is

consistency in the way the information systems are managed and handled greatly reducing on the

probability of the occurrence of operational risks. The few that disagreed with the availability of

the management of the information system are the rare cases who experienced disappointment in

the way their information was handled as expressed by one client

“After paying half of my loan, they are now busy claiming that their record show that I have only

paid once. These people are thieves and that’s why am leaving this thing of their!!!!!!” bitterly

exclaimed one respondent

The respondents were also asked if the institution had put in place internal procedures to ensure

that the same degree of cross-checking was used on all transactions, 73.1% agreed that it was the

case with up to 40.3% strongly agreeing that internal procedures are in place. Many of the

respondents pointed to the strict guidelines one has to follow so as to be served in the institute

34
with many also claiming that it is somehow also an inconvenience. Also 23.4% disagreed citing

incidences where some people known to the staff bypass the set guidelines.

Upon being asked if there was effectiveness and security of the management information

systems, nearly all respondents agreed that that’s the case with over 91% agreeing with the

statement in question and a meagre 09% disagreeing with this issue.

Table 4.5 How human resource management influences organizational performance of

microfinance institutions in Uganda.

Responses Strongly Agree Strongly Disagree Not

agree disagree sure
1 Does the institution have the appropriate 16 29 - 05 17
staff needed in its line of business 23.9% 43.3% 07.5% 25.3%
2 Is the staff well trained equipped and 15 21 02 19 10
empowered to carry on the necessary 22.4% 31.3% 03% 28.4% 14.9%
tasks for the organization
3 Is there a risk mitigation department that 37 15 - 15 -
ensures that employees maintain ethical 55.2% 22.4% 22.4%
code of conduct
4 Does the staff follow the Internal 07 08 - 41 11
procedures that are in place to ensure that 10.4% 11.9% 61.2% 16.4%
the same degree of cross-checking is used
on all transactions
5 Does staff take caution in dealing with 19 14 16 16 02
customers to ensure appropriate customer 28.3% 20.9% 23.9% 23.9% 03%
care to all clients
Source; field data (2019)

The respondents were then requested for their views as regards how human resource

management influences the organisational performance. Illustrated in the above table are the

35
responses summarised in descriptive data. Respondents were asked whether the institution has

the appropriate staff to manage the activities of the institution and up to 67.2% agreed and out of

those 23.9% strongly agreed because they feel that those running the institute are doing a good

job towards the success of the institute. Unsurprisingly to the researcher 25.3% were not sure if

the staff was the appropriate one for the institute because they can’t tell what the requirements

for working in the microfinance are;

“I can’t really tell if staff is qualified or not, what I care is I get the services I need and that’s all

that matters,” said one respondent

When the respondents were asked if the staff is well equipped, trained and empowered to carry

on tasks for the organisation, the majority agreed and they accounted for 53.7% of the total

respondents and 31.4% disagreed and 14.9% were not certain and this was mainly because many

people still complain on the way some staff handle customers need. The researcher took further

interest in this situation and asked the administrators about this in the interview and they claimed

it’s so because most of the clients are illiterate so they cannot really understand the dynamics

involved in the running of the microfinance institutions in Uganda and why they have to undergo

all that paperwork before their requests are approved.

Also respondents were asked if there was a risk mitigation department that ensures that

employees maintain the requisite ethical code of conduct, a vast majority of up to 77.6% agreed

with this and just 22.4% disagreed and their reason for disagreeing is more of the efficiency and

effectiveness of the department rather than its existence. The existence of this department

showed the employee that really operational risks exist and the institute is working hard towards

reducing them or wiping them out.

36
The study respondents were then asked if staff follows the internal procedures that are in place to

ensure that the same degree of cross-checking is used on all transactions. Most disagreed with

this and it was expressed in the response as 77.6% disagreed or were not sure if there even

procedures to follow in the first place. And as the researcher observed this was quite true

especially in the loans section since each employee manages their own customers. The key

informants attributed this to lack of adequate means to disseminate the little information

available from the headquarters to the other various branches.

When asked whether staff take caution in dealing with customers to ensure appropriate customer

care and satisfaction to all clients. The response was average since 49.2% agreed that this was

the case whilst 47.8% disagreed claiming that the customer management by the staff at the

institution was still greatly lacking and 3% were not sure. This was mainly due to the fact that

the institution doesn’t have staff to listen to customer queries thus imparting a lot of pressure on

the staff as they manage their own tasks and serve as customer care managers as well.

37
Table 4.6 Extent to which internal processes impact on organizational performance in
Microfinances of Uganda.

Responses Strongly Agree Strongly Disagree Not

agree disagree sure
1 Authorities ensure strict supervision 43 18 01 03 02
of all the staff so that work is done 64.2% 26.9% 1.5% 4.5% 2.9%
efficiently and effectively
2 The organization has all the necessary 16 29 05 11 06
material to ensure safety effectiveness 23.9% 43.3% 7.5% 16.4% 8.9%
and efficiency
3 Is the staff well trained in Policies, 54 07 - - 06
procedures, and practices of the 80.6% 10.4% 09%
industry
4 Are all the company’s policies 15 04 07 36 05
standardized so that staff don’t make 22.4% 06% 10.4% 53.7% 7.5%
decisions outside the regulations
5 Are clients encouraged to speak out 19 23 07 14 04
against corrupt staff 28.4% 34.3% 10.4% 20.9% 06%
Source; field data, 2019

The third objective wanted to establish the extent to which internal processes impact

organizational performance in microfinances of Uganda. The data that was collected was

analyzed as shown in the above table. The respondents were asked if authorities ensure strict

supervision of all the staff so that work is done efficiently and effectively, 91.1% agreed with

this and only 6% disagreed. The researcher also noted that the strict supervision is not really

liked by most of the staff.

38
“Over supervision is not good, it makes us uncomfortable. Even as I speak now I can’t freely talk

to you because my supervisor is already casting angry eyes towards me. How do they expect to

perform with such unfriendly conditions?” lamented one respondent.

Also respondents were asked if the organization has all the necessary material to ensure safety,

effectiveness and efficiency. 67.2% agreed with this and only 23.9% disagreed. This showed that

the institute has all the necessary facilities to ensure that operational risks are mitigated and the

institute has to just work towards making them effective.

On whether the staff was well trained in Policies, procedures, and practices of the industry and

nearly all the people agreed since 80.6% strongly agreed and 10.4% agreed with a mere 06% not

sure if the staff in the organization possessed and was well trained in the policies, procedures and

practices of the industry. This was attributed to the frequent refresher courses provided by the

institute that controls all the microfinances in Uganda. It seeks to try to minimize the operational

risks in the industry and cut on the costs that are caused by not managing the risks in the

industry.

Respondents were also asked if the company’s policies are standardized so that staff don’t make

decisions outside the regulations. 28.4% only of the respondents agreed to this since as noted by

many respondents, the staff usually make their own decisions as regards some business

transactions. 64.1% disagreed that there is no existence of standard policy implementation and

the staff claims this is so because they deal with many people who are illiterate and don’t really

mind the policies and don’t understand why certain things are done the way they are done in the

institute.

39
“Dealing with certain people in this business is hard since many people care to get their

demands fulfilled regardless of the means. To them the end justifies the means,” responded one

staff.

In the organization it’s more of fulfilling the customers’ demands since the competition is tight

in the microfinance business so employees have to go beyond the regulations to appease the

customers. This is a very big source of operational risks say fraud, continuous errors among

others.

It was noted that clients are encouraged to speak out against corrupt officials since when asked

about it, many respondents averaging 62.7% agreed though much as they are encouraged but

have no official center where to report them to and that justifies why 31.3% of the respondents

disagreed. They insisted that it’s not about encouraging people to report but rather show

procedures and means through which such officials can be reported.

40
 CHAPTER FIVE

DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS.

5.0 Introduction

This chapter presents the discussions, conclusions, and recommendations of the study. The

discussion of the findings follows the study objectives and relates the findings to the reviewed

literature. The conclusions are presented in answering the research questions. Furthermore the

chapter presents the recommendations in line with the conclusions and the findings as well as the

further studies.

5.1 Discussion of findings

The study was about operational risk management and organizational performance in

microfinances of Uganda. The researcher used a case study of Pride microfinance Entebbe

branch. Having analysed and presented data from the field, the researcher now presents the major

findings of the study and discusses them within the context of the current state of the economy

and earlier academic studies.

5.1.1 Relationship between information systems and organizational Performance of

microfinance institutions in Uganda.

A significant relationship was observed between relationship between information systems and

organizational performance and were further noted to be positively related. A financial

institution's ability to recover from system hits, a catastrophe, equipment failures, viruses, theft

and accounting-mix-ups is dependent on a whole range of factors, from strict adherence to

process and operational procedures, the robustness of its hardware and operating system, to the

extensiveness of its back-up operations. And it goes without saying that the effectiveness of the

41
entire enterprise information system is relative to its alignment with the business' communication

network. Ensuring a high level of data quality requires a sophisticated solution that includes

process and workflow management, as well as organisational design and technology - the actual

hardware, middleware and software controlling a system (Marshall, 2001). Part of that control

also entails the creation of a history of losses, which is necessary to bring financial institutions

into compliance with the Basel regulations. The debate of whether the established information

systems quality have rendered sufficient results to justify their expenses or satisfy user’s needs in

service industry such as microfinance and/or if it has had any impact on organizations

performance is an open question yet to be answered. According to Howson (2008) Due to recent

economic downturn, organizations are increasingly modifying various strategies and quality

improvement initiatives to continue viability. Organizations that have invested substantial

resources and time into information systems still have difficulty achieving competitive

advantages and controlling operation risks associated with information systems as loss of

information, human error, lack of backups for manual systems and inconsistent use by operators.

5.1.2 How human resource management influences organizational performance of

microfinance institutions in Uganda.

The study showed a very positive relationship between human resource management and

organisational performance. The study further showed that Human Resource Management

(HRM) has grown very popular over the past decades, and it is now a common characteristic for

nearly all financial institutions. One of the reasons for this popularity is the assumption that

HRM is a means of controlling operation risks such as human error, frauds among others, source

for competitive advantage and will influence the organisational results and performance in a

positive direction.

42
Despite the financial sector's efforts to control risks associated with human resources, institutions

still have much work to do as showed by the research and some of the unique challenges that

operational risk management brings. One of the challenges faced in management of operational

risks in conjunction with human resource is rising costs of compliance.Goodhart (2001) asserts

that effective management of human resource risks requires diverse information from a variety

of sources-including, for example, risk reports, risk and control profiles, people risk incidents,

key risk indicators, risk heat maps, and rules and definitions for regulatory capital and economic

capital reporting. Likewise, a well-structured human resource risk framework requires

development of business-line databases to capture loss events attributable to various categories

of human resource related operational risks. However, if microfinance institutions top leaders

perceive operational risk management solely as a regulatory mandate, rather than as an important

means of enhancing competitiveness and performance, they may tend to be less supportive of

such efforts (Marshall, 2001). Management and the board must understand the importance of

people risk, demonstrate their support for its management, and designate an appropriate

managing entity and framework - one that is part of the firm’s overall management.

No matter how good an organization’s procedures and systems are, if an employee becomes

unreliable, deliberately or not, an organization will find it difficult to prevent fraud and/or

mistakes. Indeed, a significant number of financial losses and physical accidents experienced by

microfinances can be attributed to the fact that people acted inappropriately through sheer

incompetence, lack of commitment or deliberate fraud (Diebold, Schuermann&Stroughair,

2000). While in a number of cases certain improvements in internal control procedures might

have (partly) prevented or delayed the errors, in most cases the “writing was on the wall”. No

matter how good procedures are, there will always be certain employees who do not have the

43
required technical and behavioral competencies to perform their tasks and others who will

deliberately manipulate and exploit the weaknesses in their organizations’ internal control

In addition, some further studies have found evidence indicating that the possible gains achieved

through HRM can be offset by the costs related to it. Further, some researchers argue that HRM

does not exclusively affect the employees in a positive way. In fact, some empirical evidence has

shown that HRM can affect the employees negatively; this includes increased work intensity,

stress, burn out, and ripple effects from work into private life. Through a discussion of the

above-mentioned evidence, factors, and elements, the researcher concludes that it is still too

early to say that HRM causes improved organizational performance. However, the amount of

evidence from the research showing a positive relationship also leads this report to conclude that

Human resource management can have a positive impact on organizational performance.

5.1.3 Extent to which internal processes impact on organizational performance in

Microfinances of Uganda.

Internal processes are not the only variable which significantly influence organizational

performance. This research suggests that the traditional organizational activities form an integral

part of the overall performance of firms which focus solely on ‘good’ features to win and retain

customers. This provides a further confirmation on the importance of managing organizational

processes to achieve high quality and innovation performance. At the same time, internal

processes also significantly relates to organizational performance as shown by the data in table

above in chapter four.

The study further showed that with continuous improvement of the internal processes of the

institution, the firms’ competitive advantage is improved as well as its overall performance.

44
Many of the operational risks come from the inability of the management of institutions and staff

as well to effectively control/manage the internal processes thereby people taking chance of

these loopholes to give rise to these risks.

Also, all of the respondents agreed that there are some formal procedures in place in the

microfinance.Therefore, from the findings the researcher can infer that the microfinances of

Uganda have internal processes (formalization and traditions) that positively influence their

performance. These findings are in agreement with a study by Crevani, Palm and Schilling

(2009) that also showed that internal processes can contribute to increased speed of new service

development and positively influence the effectiveness of service-intensive companies like the

financial sector hence improved financial performance.

According to the study, internal processed significantly influenced performance in the

microfinance institutions of Uganda. Having established formal rules and procedures ensures

smooth functioning and the absence of rules and regulations may lead to chaos and anarchy

organization and also behavioral uncertainty among employees. Nevertheless, there is a strong

and significant relationship between internal processes and organizational performance.

5.2 CONCLUSION

The conclusion of the study was made in accordance with the study objectives. According to the

findings, it was revealed that there was a significant positive relationship between Operational

risk management and organizational performance. This is confirmation that abuse of the

institutions’ processes, systems and procedures by staff depended so much on the strength of the

existing structures at the microfinance, the organizational culture and level of

disclosure/communication at the microfinance.

45
Findings of the study also showed organization’s quest to gain competitive advantage now rests

on its management of operational risks. Thus, operational risk management policies and practices

are beginning to take a center stage in organization’s business strategy for forward thinking

organizations. A critical starting point undoubtedly is the management and systematizing the

internal process of the firms. The internal processes/procedures in place need to enable good

decision making practice.

According to the findings, results showed significant and positive relationships between

operation risk management and organizational performance. This is evidence that the less risky

the organizations’ operations are in regard to the information systems, procedures, processes and

human resource, this would enhance and improve the market share, profits and growth of the

microfinance hence improved organizational performance.

5.3 Recommendations of the study

In light of the research findings, the following recommendations are made:

For management to control operational risk at the bank, there should be effective monitoring and

evaluation of all the transactions whether manual and or electronic. This calls for system forensic

experts who are tasked to double check other staff operations on systems, procedures and

processes.

From the findings, operational risks management was found to be a significant predictor of

organizational performance. Therefore, the management of the organization should put in place

the required structures, promote a good organizational cultures and put controls on the

46
disclosures during the microfinance’s operations as this will enhance the growth in terms of

profitability and market share of the firm.

According to the findings, the management of the microfinance needs to put a lot of emphasis on

the significant relationships between the study variables and organizational performance as a

means of improving the performance of the bank. In situations where the bank cannot mitigate

the risk, the bank should protect itself through insurance cover. This will protect the institution

from risky ventures against loss.

Training of staff in operation risk management should be a requirement for every staff of the

firm. This could be in terms of training in new system technologies such as IT systems, processes

and procedures. This will help staff acquire advanced knowledge in IT system operations which

will help them develop skills to identify occurrences of risks during the performance of their

duties.

Management should institute stringent measures on system access and navigation to limit system

abuse by staff and colleagues. This could be through putting data protocols with authorized

access to information on the system.

There should be a lot of emphasis on effective communication on the part of management as this

will have a positive effect on the image, reputation and personality of the microfinance.

Therefore, a comprehensive public relations department is paramount to provide feedback and

response to public information.

47
5.4 Suggested Areas for further study

Although the study provides insight into operation risk management and organizational

performance within the microfinance industry; the study was specific to pride microfinance.

Therefore, it recommends that a similar research on operational risk management on

organizational performance to be carried out in other microfinance institutions of Uganda for a

better comparison of the results and findings.

Also future research should attempt to gather information from other sectors in Uganda other

than the finance sector only. This will be key in determining the overall importance of operation

risk management in all sectors of the economy of Uganda.

48
 REFERENCES

Agnes Koomson (2011). A Thesis Submitted to the Institute of Distance of Learning (IDL),

Kwame Nkrumah University of Science and Technology (KNUST).

Albert, Christopher, Audrey Dorofee, Lisa Marino (March, 2008). Mission Diagnostic Practical,

Version 1.0: A Risk_Based Approach for Assessing the Potential for Success. Software

Engineering Institute.

Altemeyer, Lynn (2004). An Assessment of Texas State Government: Implementation of

Enterprise Risk Management. Applied Research Project.Texas State University,

http://ecommons.txstate.edu/arp/14/.

Amin E. M. (2005). Social Science research: Conception Methodology and Analysis. Kampala

Uganda.Makerere University Printery.

Armstrong, A. (2004). A Handbook of Human Resource Management Practice, 10 th Edition,

Kogan Page Limited; UK.

Bandura, A. (1977). Self-efficacy: Towards a unifying theory of Behavioral Change.

Psychological review, 84, 191-215.

Bandura, A. (1978). Reflections on Self-efficacy. In S. Rachman (Ed.), Advances in Behavior

Research and Therapy (Vol. 1. Pp. 237-269). Oxford: Pergamon.

Borodzicz Edward (2005). Risk, Crisis and Security Management New York: Wiley: ISBN

470-86704-3.

Campbell D.J. (1988).Task Complexity: A Review and analysis. Academy of Management

Review, 13,40-52.

49
Chambers C. D. Johnson K. A. Dick L.M. Felix R. J., Jones K. L., Birth Outcomes in Pregnant

Women taking Fluoxetine. N. Engl J. Med. 1996; 335:1010-5.

Chapman C and Ward S. (2003). Project Risk Management: Processes, Techniques and Insight,

2nd Edition, Chichester: John Wiley & Sons.

Chapman C. Ward S. (2002). Managing Project Risk and Uncertainty – A Constructional

Simple Approach to Decision Making, Chichester.

CIMA (2007). Enterprise Governance right: getting the balance right CIMA executive report

London New York: CIMA/IFAC (2003).

Covello, V. T., &Mumpower, J. (1985). Risk Analysis and Risk Management: A historical

Perspective. Risk Analysis, 5, 103-120.

Danilo Gomes De Matos (2009). Operational Risk Management in Aviation, the Implementation

of a new baggage Logistics at Hearthrow Airport Terminal 5.

David A. J. Axson (Mar. 7, 2003). Best Practices in Planning and Management Reporting.

Dey, P. K. (2010, September). Managing Project Risk using Combined Analytic hierarchy

process and risk map. Applied Soft Computing, Volume 10 (Issue 4), 990 – 1000).

Joy Mutesi (2011). Information sharing, risk management and financial performance of

commercial banks in Uganda.

Kakinda, (1990). Social Science Research Methodology and Analysis Kampala Uganda;

Makerere University Printery.

50
Kimani Michael Thuku (2012). Relationship between risk Management and Practices and

Organization Performance of Universities in Kenya.

Kombo D. K (2006). Proposal and Thesis Writing: An Introduction – Nairobi Pauline

Publication.

51
APPENDICES

QUESTIONNAIRE

To the administrators, staff and clients

Dearrespondent,

I am Luggya Joseph Balikudembe a student of University of Kisubi pursuing a Bachelor Degree

in Business Administration and Management, carrying out an academic research on the impact

of operational risk management on organisational performance in microfinances of

Uganda. A case of pride microfinance you are randomly selected to participate in this study by

filling this questionnaire. Your answers will be kept confidential since the information given will

be used for academic purposes.

Instructions;

1. Do not indicate your name

2. Put a tick (√) in the box which corresponds to your option.

Section A: Respondents’ Bio-data

1. Please indicate your gender in the space provided below:

a) Female b) Male

2. Please indicate your age bracket in the space provided below:

a) 15-25 years b) 26-32 years c) 33- 50 years

52
 Section B. Extent to which human resource influence organisational performance in Pride

Microfinance, Entebbe Branch

In this section please insert a tick (√) to indicate any appropriate answer to you.

Responses S.A A S.D D N.S

1 Does the institution have the
appropriate staff needed in its
line of business

2 Is the staff well trained equipped

and empowered to carry on the
necessary tasks for the
organization
3 Is there a risk mitigation
department that ensures that
employees maintain ethical code
of conduct
4 Does the staff follow the
Internal procedures that are in
place to ensure that the same
degree of cross-checking is used
on all transactions
5 Does staff take caution in
dealing with customers to ensure
appropriate customer care to all
clients
S.A-Strongly agree, A –Agree, S.D. –Strongly disagree, D –Disagree, N.S–Not sure

6) What has management done to ensure that risks associated with human resource are mitigated
or reduced?

.………………………………………………………………………...……………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
53
SECTION C: Extent to which information technology affects organisational performance

in Pride Microfinance Entebbe branch.

In this section please insert a tick (√) to indicate any appropriate answer to you.

S.A-Strongly agree, A –Agree, S.D. –Strongly disagree, D –Disagree, N.S–Not sure.

Responses S.A A S.D D N.S

1 Does the institution have the necessary
technologies and infrastructure needed in
its line of business
2 Is the staff well trained in the use of the
available technologies without making
many errors
3 Is there consistency in the use of systems
data in managing clients affairs
4 Internal procedures have been put in place
to ensure that the same degree of cross-
checking is used on all transactions.
5 Is there effectiveness and security of the
management information systems e.g.
backups

6) What other factors do you think may ensure effective handling of the information
systems.……………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………….

54
Section D: Extent to which internal processes impact on organisational performance in
Pride Microfinance Entebbe Branch.
In this section please insert a tick (√) to indicate any appropriate answer to you.

Responses SA A S.D D.S N.S

1 Authorities ensure strict
supervision of all the staff so that
work is done efficiently and
effectively
2 The organisation has all the
necessary material to ensure safety
and efficiency
3 Is the staff well trained in Policies,
procedures, and practices of the
company
4 Are all the company’s policies
standardised so that staff don’t
make decisions outside the
regulations
5 Are clients encouraged to speak
out against corrupt staff

Suggest ways of improving the current operational risk management system in the organisation
............................................................................................................................................................
............................................................................................................................................................
............................................................................................................................................................
................................................... .............................................................................................

Thank you very much for your time and support

55
APPENDIX 2: INTERVIEW GUIDE

(To be filled by Top Management)

1. What department do you belong?

2. How many professional employees in risk?

3. Do you have an ORM in place?

4. Does your ORM system capture the operational risk events in the day to day management

and practice?

5. Does your organization quantify and keep a record of the operational risk events that have

occurred?

Does your organization categorize the operational risk events? Mention categories

56