Effects of Working Capital Management on Profitability of NBFIs in Rwanda

Abstract

Working capital management is a key factor in determining a company's financial management. Inefficient or inefficient management of working capital impacts profitability and liquidity. To achieve optimal working capital management, company management must carefully manage the trade-off between profitability and liquidity. The general objective of this study was to determine the Effects of Working Capital Management on Profitability of NBFI in Rwanda. The study adopted Credit theory and Transaction Cost Theory. The study adopted a descriptive research design using both quantitative and qualitative approaches. The study assumed a target population of 96 individuals, a multistage random sample of 38 executives from various categories. Survey data were collected using a structured questionnaire. To test whether there is an impact on the profitability of the NBFIs in Rwanda, the correlation between inventory management policy and profitability and the correlation analysis between lending policy and profitability were used. Working capital has been found to have a significant relationship with profitability. Based on the research findings, it can be concluded that working capital is a positive, significant predictor of profitability. The findings of the study suggested that there is a positive and significant relationship between credit policy and profitability. A positive significant linear relationship between inventory control policies and profitability of NBFI in Rwanda was observed. The NBFI financial managers should regularly review their credit policies to ensure they are optimal. NBFI's finance managers should take precautions to help them maintain optimal inventory levels for both raw materials and finished goods.