Relationship between Quality Compliance and Financial Stability of Micro Finance Institutions in Rwanda

Abstract

The purpose of this research is to determine the relationship between quality compliance and financial stability of Micro Finance Institutions (MFI) in Rwanda. In Rwandan perspective, financial system is still relatively shallow and thus potential impact on financial stability. The study was guided by research objectives which include: to evaluate the effect of Audit process, Governance, Risk Management, Financial Controls on Financial Stability of Micro Finance Institutions in Rwanda. The research design used in this study was mixed design employing both the qualitative and quantitative design. Primary data was acquired through administering questionnaires and interviews to a purposive sample of Risk Manager, Chief Financial Officer or Internal Auditor of MFI in Rwanda. Census survey and a target population of fifty four were extracted from the MFI Rwanda data base. A pre-test on a different sample gave a cronbach’s alpha greater than 0.7 for all the variables. Data analysis was by descriptive statistics and inferential statistics using Statistical Packages for Social Sciences (SPSS) version 24. Analysis of variance (ANOVA) was used to establish if there is a statistical significance between the observed and expected values with the Pearson chi square giving the degree significance of the relations, hence establishing the hypothesis. The results indicate that four of the variables, audit process, governance, risk management and financial controls. Accessibility of financial information has a weak negative correlation with Financial Stability on the MFI. The study gives recommendations which include the adoption of proper financial risk management systems and improving the efficiency of prudential regulation and supervision procedures in order to improve Quality compliance