Strategic Risk Management Practices and Firm Performance of Ngo-Funded Microfinance Banks in Tanzania: A Case of Visionfund

Abstract

The challenges that face microfinance institutions (MFIs) in Tanzania are mostly risk management problems that result in high loan defaults and financial unsustainability. The purpose of this study was to investigate the effect of strategic risk management practices on the performance of NGO-funded microfinance institutions in Tanzania, a case of VisionFund. The objectives were to determine the effect of operational risk management, financial risk management, and reputational risk management on the firm performance of VisionFund, Tanzania, and to establish the moderating effect of government regulations on the relationship between strategic risk management practices and performance of VisionFund, Tanzania. The study was underpinned by the Enterprise Risk Management (ERM) Model as the main model, and Institutional Theory, and the dependent variable was supported by the Balanced Scorecard Model. The study adopted both descriptive and explanatory research designs, and targeted 103 seniors, managers, middle managers, and supervisors of VisionFund Tanzania. The study adopted a census approach to collect data. Primary data was collected using a structured questionnaire. The study was pretested on 10 employees from FINCA Microfinance Bank. Validity was tested through content and construct validity, while reliability was tested using Cronbach's Alpha Coefficient at 0.7. Data analysis was done using SPSS 27.0, where descriptive statistics were analyzed using minimum, maximum, mean, and standard deviations, frequencies and percentages, while inferential statistics included correlation and regression analyses. Ethical considerations were considered. The study established that all the constructs were reliable, with Cronbach's Alpha coefficients greater than 0.7. The response rate for this study was 93.2%. Furthermore, the study found that all the constructs of strategic risk management practices were strongly positive and statistically significant. Particularly, the study established that operational risk management had a strongly positive and statistically significant correlation with firm performance (r=.764, p<.001); the study also showed that reputational risk management has a highly positive and statistically significant correlation with firm performance (r=0.842, p<.001). Further results indicated that financial risk management is significantly and positively related to firm performance (r=.795, p<.001). In terms of the regulatory environment, it is statistically and positively related to firm performance (r=.728, p<.001). Also, the study determined that the regulatory environment significantly moderates the relationship between strategic risk management practices and firm performance, with an increased explanatory power of 76.7% when included in the model. The study concludes that the holistic design of strategic risk management practices has a significant impact on firm performance. The study recommended that VisionFund should develop and tailor its programs such that they meet particular community needs and ensure the consistency of their participation. The study contributed to the knowledge on strategic risk management practices’ role in improving the firm performance, by providing insights and knowledge that can inform policy making and practices among the MFIs, and government agencies in charge of banking and microfinance operations in Tanzania and beyond.