Risk Management Practices and Profitability of Microfinance Banks in Rwanda A Case of Urwego Bank


  • Lydia Gahongayire School of Business and Economics, Business Administration (MBA), Finance, Mount Kenya University, Kigali, Rwanda
  • Mercyline Kamande Mount Kenya University, Kenya




Risk Management Practices, Profitability, Microfinance Banks, Urwego Bank, Rwanda


Financial institutions are major players in the economic development of a country by offering channels through which funds flow from one source to another. However, they are faced with numerous risks in their daily operations. The main goal behind the current research was to assess the effect of risk management practices on the profitability of microfinance banks in Rwanda, a case of Urwego Bank. Both descriptive and correlational research designs were used. Data was collected from the targeted population of 113 employees in Urwego Bank who were considered for the sampling using the census method. The data was collected using structured questionnaire and interview guide for key informants. The research instrument reliability test was done using Cronbach’s alpha test while the validity was achieved through revision of the questionnaire after a pre-test is conducted. The data that collected was analyzed using SPSS through which data was presented using frequency tables, descriptive statistics, and regression analysis. The findings on risk assessment revealed that 77.8% of the respondents agreed that they can conduct risk identification. A total of 63.4% of the respondents agreed on the importance of risk classification. The regression analysis revealed that there is combined effect of risk measurement, risk identification and risk classification on the profitability of the bank giving an R2 of 0.418. On whether having control measures within a bank can greatly assist in effective risk management, 82.5% of the respondents agreed. 73% of the respondents agreed that risk mitigation strategies are effective ways of reducing the possibility of occurrence of risk and their impact in an organization. 74.1% of respondents showed that risk financing is important for the Bank in its management of risk. Further, regression analysis showed the model was fit at 5% and an R2=0.582 indicating that the changes in profitability of the Bank are influenced by risk control measures. The regression model regarding the risk monitoring was found to be significant and an  showing that the profitability in Urwego Bank is influenced by risk monitoring processes. The overall regression model was significant  and an R2=0.536 and showed that risk management practices should be practiced in totality to ensure that effective results are obtained. Therefore, the researcher recommended that policy makers and supervisors, including the central bank, should be more vigilant in promulgating the culture of risk management in the banks especially for microfinance banks which are few in the industry.


Bessis, J. (2011). Risk management in banking. USA: John Wiley & Sons.

Byamungu, E., Nkechi, I. E., & Ogoi, H. J. (2019). Effect of Risk Management Practices on Corporate Investment of Financial Institutions in Rwanda: A Case Study of Selected Commercial Banks. European Journal of Business and Management Research, 4(4):13-25.

Chapelle, A. (2019). Operational Risk Management: Best Practices in the Financial Services Industry. UK: John Wiley & Sons.

Ghani, R. A., & Mahmoodb, R. (2015). Risk management practices and performance of microfinancing banks in Malaysia. Academia Journal UiTMT, 4(2): 26-33.

Goldberg, M., & Palladini, E. (2010). Managing risk and creating value with microfinance. Washington DC: The World Bank.

Irawati, N., & Maksum, A. (2018, January). The Impact of Risk Management and Bank Size on Profitability Of Commercial Banking In Indonesia. In 1st Economics and Business International Conference 2017 (EBIC 2017). Paris: Atlantis Press.

Kamau, P. M. (2010). Adoption of risk management by commercial banks in Kenya (Doctoral dissertation, University of Nairobi).

Knewtson, H., & Qi, H. (2019). Managing risk for sustainable microfinance. The Journal of Risk Finance. 20(1): 2-13.

Lee, J.J. (2014). Improving Regulatory Framework for MFBs and NB MFIs in Rwanda. Rwanda: Access to Finance Rwanda.

Mohamed, A. M., & Onyiego, G.(2018). Effect of risk management on financial performance of commercial banks in Kenya: a case study of commercial banks in Mombasa County. Strategic Journal of business and change 5(4):1605-1630.

Olalekan, L. I., Olumide, M. L., & Irom, I. M. (2018). Financial risk management and the profitability: an empirical evidence from commercial banks in Nigeria. Samuel Analyst Journal of Management Sciences, 16(2): 56-67.

Raghavan, R. (2017). Risk, the Business Driver in Banks. Indian Journal of Agricultural Economics, 72(1), 129-131.

Rwayitare, J.B., Shukla, J. and Ruhara C. (2016). Credit Risk and Commercial Bank Profitability in Rwanda. International Journal of advanced Research, 4(9): 294-325.

Sabeza, F., Shukla, J., & Bajpai, G. (2015). Assessing Credit Risk Management Practices and Performance of Commercial Banks in Rwanda. International Journal of Social Science and Humanities Research. Kigali, 10(3): 323-333.

Sun, C., & Chang, X. (2018). The Impact of Credit Risk on Profitability of Commercial Banks. International Journal of business 25: 12-23.

Ugirase, J. M. (2013). The effect of credit risk management on the financial performance of commercial banks in Rwanda (Unpublished MBA dissertation).

Zou, Y., & Li, F. (2014). The impact of credit risk management on profitability of commercial banks: A study of Europe. Journal of business economics 12(4): 123-134.




How to Cite

Gahongayire, L. ., & Kamande, M. (2021). Risk Management Practices and Profitability of Microfinance Banks in Rwanda A Case of Urwego Bank. Journal of Advance Research in Business, Management and Accounting (ISSN: 2456-3544), 7(10), 76-88. https://doi.org/10.53555/nnbma.v7i10.1071

Similar Articles

1-10 of 108

You may also start an advanced similarity search for this article.