Effect of Operational Risk Management on Firm Performance among NGO Funded Microfinance Banks in Tanzania A Case of Visionfund

Abstract

Microfinance institutions (MFIs) in Tanzania continue facing significant challenges mostly related to risk management, which have resulted to high loan default rates and financial unsustainability. The purpose of this study was to investigate the effect of operational risk management on firm performance among NGO-funded microfinance banks in Tanzania, a case of VisionFund. The study was guided by positivism research philosophy and applied both descriptive and explanatory research designs. The population of the study was employees of VisionFund. The target population included all 103 employees of VisionFund, Tanzania, drawn from senior management, functional management (regional and program managers), and operational levels (supervisors). The study adopted a census approach, and data collection was done via a structured questionnaire. It contained closed-ended/Likert scale questions. The pretest was done on 10 employees from FINCA Microfinance Bank to determine the validity and reliability. Construct and content validity were used, while reliability was tested using Cronbach’s Alpha Coefficient with a threshold of 0.7. Data was analyzed using SPSS 27.0, where descriptive statistics (means, standard deviations, and percentages), and inferential statistics (Pearson correlation and simple linear regression) were conducted. The findings established that operational risk management had a strongly, positively, and statistically significant effect on firm performance (r=.764, p<.001). Furthermore, the regression analysis revealed that enhancements in operational risk management significantly improved firm performance. The study concludes that the adoption of operational risk management is a vital factor of firm performance among NGO-funded microfinance institutions. The study further recommends that VisionFund, Tanzania, should strengthen its operational risk management practices through tailoring internal control systems, investing in staff training about risk identification, how to mitigate, and leveraging the technology to enhance compliance and risk monitoring.