Working Capital Management and Profitability of Microfinance Institutions

Abstract

This study's goal is to investigate how working capital management affects the financial performance of microfinance organizations in Zambia, with a focus on FINCA Zambia Limited (Ltd). The study found the methods that may be utilized to enhance working capital management and the profitability of MFIs in Zambia. It particularly identified elements that have a negative impact on liquidity, evaluated the efficacy of working capital management strategies, and identified factors that have a negative impact on liquidity. The study drew 30 people from a population of 45. Three main research questions were addressed using a semi-structured questionnaire administered by the researcher during one-on-one interviews. The study relied on qualitative research methods, and the data was analyzed using Atlas.ti and Microsoft Excel for the quantitative aspects. The study discovered that WCM is critical in all businesses, including microfinance institutions, and is related to FINCA's profitability. FINCA employs an accounts receivable management strategy and takes a conservative approach to working capital management. FINCA's cash management strategy was found to have a negative impact on profitability. Implementing a good accounts receivable management system is one of the measures identified in this study that can be used to manage accounts receivable and payable. This can have an impact on liquidity and cash flow, as well as reduce late payments, which has a direct impact on expected interest earnings. As a result, it was recommended that FINCA consistently and effectively manage their working capital to improve profitability by implementing adequate planning and controls to help them monitor their daily operations, thereby maximising shareholder wealth, and invest more in profit-generating activities only to increase income and reserves. Keywords: Accounts payable, Accounts receivable, Cash flow management, Working capital management