Asset Ownership and the Probability of Repayment: An Examination of Microcredit Data from Bangladesh (original) (raw)

Essays on repayment and microfinance

2019

The first of the two essays in this dissertation uses primary data from Bangladesh to explore the role of microloan repayment frequency (weekly vs. bi-weekly, assigned randomly) on loan repayment performance of microfinance borrowers after controlling for their inherently distinct time preferences. The findings show that the borrowers’ individual time preference is an important determinant of their repayment behavior. Specifically, the repayment performance of present-biased borrowers improves significantly when they happen to be assigned to the weekly repayment schedule instead of the bi-weekly schedule. Also, irrespective of time preference, borrowers are found to invest more in new businesses under a more flexible (i.e., bi-weekly) repayment schedule. Overall, our findings suggest that instead of a "one size fits all" approach, by offering loans with a weekly (bi-weekly) repayment schedule matched to the present-biased (time-consistent) borrowers, the MFIs might be able...

The Dichotomy of Risk and Loan Repayment: Which Way Microfinance Banks?

The International Journal of Business & Management

Repayment of disbursed loans to borrowers remains the central focus of every lending financial institution. Microfinance banks (MFBs) are vehicles of financial inclusion designed to onboard the unbanked majority, especially in developing countries. However, the transition drags along with it worrying default trends that threaten to overturn the gains of this concept. Reports indicate that of 45% of default borrowers in the USA, 60% terminate into bad debts. The statistics in Nigeria depict growing non-performing loans. The loan repayment trend among MFBs reflects a trajectory that calls for urgent intervention measures to secure steady operations to the extent of meeting their arising financial obligations. Existing empirical studies were biased in favour of credit risk and left the mitigation perspective of its management, which serves to diagnose and neutralize potential adverse lending outcomes. Extant literature is dedicated to investigating parameters associated with profitabil...

THE EFFECTS OF LOAN DEFAULTS ON THE OPERATIONS OF MICROFINANCE INSTITUTIONS (MFIs)

2012

Microfinance as pioneered in Bangladesh by Mohammed Yunus was to assist low-income women and men through micro-enterprises for their economic development. Growing concerns about poverty stands out in political agendas all over the world, as stubbornness of poverty even in the richest nations is being met with increasing impatience (Mwangi et al, 1998). Governments and international aid donors have been subsidizing credit to small farmers in rural areas of many developing countries. These subsidized credit from donor Non-Governmental Organizations (NGOs) made it possible for large numbers of low-income people to have access to financial services. According to Consultative Group to Assist the Poor (CGAP, 2001) report, nearly three billion (3bn) poor people lack access to the basic financial services essential for them to manage their businesses and it is estimated that about 35% of people in developing countries live below the poverty line subrata. In Ghana, it has been estimated that...

The Occurance and Theoretical Aspects of Microfinance

2017

Micro-lending is a financial instrument for providing small loans and other financial services (such as micro-savings and micro-insurance) for the poor segments of the population for the purpose of self-employment or to start-up their own businesses. This method enables them and their families to be employed and economically independent. To better understand the concept of micro-lending in a scientific sense, it is necessary to investigate the circumstances and factors that have created the occurrence of this form of financing. The research in this paper starts from Bangladesh which is considered to be the "cradle of microfinance" in the world. Although there are differences between the countries that have developed microfinance such as population, culture, history, geographical features, economic development etc., there are also significant similarities. The main objective of this study is to determine whether there is a common pattern and to define the corresponding mome...

Microfinance Loan Default: Evidence from Indian Microfinance Institutions

Journal of Commerce & Accounting Research, 2020

The number of microfinance institutions (MFIs) entering the microfinance sector increasing gradually, leading to the cutting of corners in matters of consumer protection-multiple lending, over-indebtedness, and consequently coercive collection practices. Because of these practices, defaults in microfinance loans have been increased significantly in the last decade. This research paper has studied the causes of default of microfinance loan by the adoption of cross-sectional descriptive research design. For primary data collection, a structured questionnaire was formed with thirty-seven questions. For selecting samples, cluster sampling was used initially and had taken Gujarat state as one of the clusters. Next, MFIs were selected from this cluster with certain criteria and then microfinance loan defaulters of these MFIs were chosen for the survey. A total of four hundred and sixty-three microfinance loan defaulters of MFIs were surveyed. Next, the paper evaluates the combination of different variables that could have led to loan default through cross-tabulation Next, the paper has studied the association of borrower's factors with causes of default and the loan amount to understand different characteristics that lead to a specific cause of default. Lastly, to identify the variables considered for deciding the loan amount. The frequency analysis showed that the major cause of default was another debt which highlighted the situation of multiple lending where different MFIs lends to the same borrower. The results of cross-tabulation and hypotheses tests show that MFIs were not considering demographic and economic factors of the borrower while deciding the loan amount and rather it was related majorly to the number of borrowing cycles. By analyzing the results of the study, the paper identifies preventive measures to control microfinance loan defaults.

RESEARCH ARTICLE SOCIOECONOMIC AND DEMOGRAPHIC INFLUENCE ON MICROFINANCE LOAN DEFAULT RATE

The purpose of the study is to define a relationship between microfinance loan default rate (risk of loan repayment) and certain key socioeconomic and demographic variables. By conventional thinking, we are prone to assume that loan default rate in microfinance institution is likely to outpace the default rate in commercial banks. This assumption rest on the less stringent minimum risk acceptance criteria in lending, and the traditional in-built weaker control mechanisms and lax lending practices in microfinance institutions to accommodate the less privilegeand promote financial inclusion. The socioeconomic and demographic profile of the average customer of the microfinance institution is markedly different from the clients of the Commercial banks. Surprisingly, the early experience of the modern Father of microfinance, Prof. muhammad Yunus, indicates that microfinance default rate is statistically insignificant, and repayment culture may vary from one country to the other as influenced by endogenous factors or exogenous factors like government interference.The paper explores whether default rate can be explained by the endogenous factors(independent variables) in a selected microfinance institution in Nigeria. Advanced Multivariate statistical methods of factor analysis and discriminant analysis are employed to facilitate the handling of the multiple socioeconomic and demographic factors that might influence microfinance loan default rate.

Determinants of loan repayment performance: Case study of Harari microfinance institutions

Journal of Agricultural Extension and Rural Development

The study was conducted in Eastern Hararghe Zone of the Harari Regional State, Ethiopia. This study is intended to assess factors affecting loan repayment performance of Harari Microfinance Institution. The survey was conducted in three Kebele Associations having the maximum number of borrowers, by selecting 120 sample households through systematic random sampling between defaulters and nondefaulters of the MFI. Out of 120 borrowers, 50% were defaulters, and the remaining half was nondefaulters. Pre-tested structured interview schedule was used to collect primary and secondary data. Key informant interviews and focus group discussions were used to generate the necessary qualitative data. The collected data were analyzed by employing descriptive statistics and logistic regression (binary logit). A total of fifteen explanatory variables were included in the empirical model and out of these, nine were found to be statistically significant to influence the dependent variable. These significant variables are: Saving habit of borrowers, loan size, perception of borrowers on repayment period, source of income, availability of training, business experience, business type, family size, and the purpose of saving were found influencing loan repayment performance as evidenced from the model statistic (significant at 1, 5 and 10%). The econometric result revealed that the probability of default increases as the family size increases, when the borrower has negative perception on repayment period, less training, low business experience, poor saving habit and only single source of income. On the basis of the study findings, some recommendations were made to improve loan repayment performance in the study area. The strategy would be: Reducing family size through expanding family planning program, increasing borrower's perception on repayment period through training, selecting business-experienced borrowers. The study also recommends a plan to assist borrowers in the study area to increase their business entrepreneurs' skills through appropriate infrastructure, enhanced lendable funds in the microfinance institutions and business training for borrowers, enhanced loan amount and addressing challenges facing the microfinance institution.

The Role of Microfinance Banks

The study examined the role of microfinance banks in financing agriculture in Yola North Local Government Area of Admawa State. Primary data were collected from a total of 100 farmer selected by simple random sampling. Structured questionnaires were the instrument for data collection from the farmers. Simple descriptive statistics such as means and percentages and frequencies were used to analyze the data collected from respondents. Results reveal that, majority (67.11%) of the respondents were males, while 32.8% were females, 44.74% of the respondents were within the age limit of 31 – 40 years, 73.68% of the respondents were married, and 85.53% of the farmers had formal education. 60.53 % used the loan for the purpose for which it was collected and 55.26% repaid the loan collected from the Microfinance Bank Yola in (2010). 15.29% of the respondents identified high interest rate on loan acquired from microfinance bank as a major problem, 10.95% identified delay in loan disbursement as their major problem while only 1.18% of the respondents stated that they were not given the loan they applied for. The study recommends that loans for the farmers should be disbursed in good time; banks should reduce the interest rates on agricultural loans. Also, microfinance banks should be encouraged to act as a major lender in financing small scale farmers in the country to meet the food requirement of the teeming population. Abstract-The study examined the role of microfinance banks in financing agriculture in Yola North Local Government Area of Admawa State. Primary data were collected from a total of 100 farmer selected by simple random sampling. Structured questionnaires were the instrument for data collection from the farmers. Simple descriptive statistics such as means and percentages and frequencies were used to analyze the data collected from respondents. Results reveal that, majority (67.11%) of the respondents were males, while 32.8% were females, 44.74% of the respondents were within the age limit of 31 – 40 years, 73.68% of the respondents were married, and 85.53% of the farmers had formal education. 60.53 % used the loan for the purpose for which it was collected and 55.26% repaid the loan collected from the Microfinance Bank Yola in (2010). 15.29% of the respondents identified high interest rate on loan acquired from microfinance bank as a major problem, 10.95% identified delay in loan disbursement as their major problem while only 1.18% of the respondents stated that they were not given the loan they applied for. The study recommends that loans for the farmers should be disbursed in good time; banks should reduce the interest rates on agricultural loans. Also, microfinance banks should be encouraged to act as a major lender in financing small scale farmers in the country to meet the food requirement of the teeming population.

Repayment performance in microfinance programs: An individual lending approach

2013

This paper analyzes the repayment performance in microfinance programs in Malaysia that apply individual lending approach.The research framework of this study is built by four factors namely individual/borrower factors, firm/business factors, loan factors and institutional/lender factors as independent variables and repayment performance either paid on time, delinquent and default as dependent variables.The study used a mixed-method combining between quantitative and qualitative data through questionnaire survey, in-depth interviews, published and unpublished reports.The data of this study is gathered from 401 respondents in Peninsular Malaysia through multistage random sampling.The data is analysed by descriptive analysis and multinomial logit model. Meanwhile, for qualitative data, a total of 21 respondents (7 respondents who paid on time, 7 respondents who delinquent and 7 respondents who default) were selected randomly and structured interviews with 6 MFI’s State Managers.The re...