Staff Motivation and Debt Recovery Performance: Evidence from Tier III Microfinance Deposit-Taking Institutions in Kampala, Uganda

Abstract

Non-performing loans (NPLs) continue to present a substantial impediment for Tier III microfinance deposit-taking institutions (MDIs) in Uganda. Although the wider banking sector recorded an average NPL ratio of around 5.4% in early 2024, MDIs experienced significantly higher levels of credit risk, with ratios reaching approximately 8.0%. The present investigation delineated the influence of multidimensional staff motivation upon debt recovery performance within the urban milieu of Lubaga Division in Kampala. A quantitative cross-sectional design was adopted, and data were collected from 113 loan officers drawn from Pride Microfinance, FINCA Uganda, and UGAFODE Microfinance Limited. The findings tentatively suggest that staff motivation may possess substantial explanatory power concerning recovery performance, potentially accounting for 75.2% of the observed variation in debt recovery outcomes. Among the motivational dimensions, extrinsic motivation appears to emerge as the strongest predictor of performance (β = 0.426). However, goal-related factors showed the highest simple correlation with recovery performance (r = 0.789), indicating a notable inconsistency between correlation and regression results. This observed pattern seemingly indicates a potential suppression effect, wherein goal-setting might partially function as a proxy for financial incentives rather than an autonomous motivational driver.

Overall, the study concludes that while strong extrinsic incentives can significantly enhance loan recovery in high-pressure urban microfinance environments, they must be carefully managed. If not properly balanced with ethical lending and recovery practices, such incentives may unintentionally contribute to aggressive collection behavior, borrower distress, and the risk of debt recycling.