FACTORS IMPEDING GROUP LENDING IN THE MICRO FINANCE INSTITUTIONS (MFI’S) (original) (raw)
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International Journal of Financial, Accounting, and Management
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ABSTRACT Microfinance refers to the provision of financial services like savings, money transfers, payments, remittances, and insurance to the poor based on market-driven and commercial approach. However many microfinance practices today still focus on micro-credit; that is providing the poor with small credit with the hope of improving their labour productivity and thereby lead to increment in household incomes. Microfinance products tend to be for smaller monetary amounts than traditional financial services. The design of products and services offered fit the financial needs of individuals, households and enterprises which can change significantly over time, especially for those who live in poverty. The main objective of the study was to establish why micro finance institutions have a higher default rate as compared to the formal banking sector. This research adopted a case study research design where Jitegemea Credit Scheme was used to establish why micro finance institutions have a higher default rate as compared to the formal banking sector. The study relied on primary data collected from the credit department of the organization with the aim of establishing how the organization selects and appraises potential clients for disbursement of funds and how the various aspects of clients affect their possibility of default.The findings revealed that those clients aged between 30-40 years who have an average of 2 children and have a O’level education take up loans more frequently from MFIs since this niche of clients is active in terms of business and other economic activities therefore in need of financial support. Secondly, the findings indicate that few borrowers had been supervised on loan utilization which is a pointer as to why default rates could be higher in MFIs. The result of this study concluded that inadequate supervision of borrowers on loan utilization and loan repayment lead to default of repayments. Supervision is an important aspect since it compels borrowers to be committed; a fact expressed by borrowers who said they considered supervision important in loan repayment. In order to minimize default in repayments, MFIs should ensure that whoever they are lending to meets a minimum threshold in asset value before loans are accessed. The study recommends that MFIs should educate the borrowers on the need to spend less on household consumption so as to reduce on default as well as borrowers being able to save their money since a good number of the borrowers did not use the loans t for the intended. Such diversions were the reason why they were unable to keep up to date in their repayments. The study further recommends that in order for MFIs to reduce default in loan repayments, they should monitor the borrowers regularly so as to ensure that they use the loans they received for the agreed and intended. This can they can do through getting regular account statements from borrowers as well as physically visiting the borrowers to monitor and evaluate the progress of their loan projects
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One fundamental problem faced by the Microfinance industry in Ghana during the period 2003-2007 was the technique adopted for credit risk management by the Microfinance firms (MFFs). This problem prompted this deductive study which was to assess the effectiveness of the techniques adopted by the MFFs to manage their credit risks during that period. The research examined the effectiveness of the techniques used by the firms. It was carried out with the support of a 5-member team from the Institute of Professional Studies, Accra, who assisted during the data collection phase of the study. The study was conducted using 20 Micro-firms in Accra which were randomly selected. The study established that the small MFFs were more vulnerable to credit risk than the bigger firms. The study came out with the recommendations that the MFFs should invest in computerised systems that would enable them compute and assess on a continuous basis, their credit risks track records and generate reports on credits granted. The firms should encourage their clients to insure against risk that might affect their businesses, invest in quality manpower so that they could assess their clients efficiently and help in managing their clients risk bearing portfolio. It was also recommended that the continuous use of written policies that guided most of the firms on credit granting should be encouraged by all the firms.
Journal of Economics and Sustainable Development, 2020
The study was intended to analyze the determinants of group loan repayment performance of MSE's sectors a case of Oromia Credit and Saving Share Company operating in the East Wollega Zone. The survey data was conducted by using the structured questionnaire in order to collect primary data from the purposively selected branches whereas secondary data were collected from published and unpublished documents. Out of 424 total number of groups owned of MSE's sectors 168 sample size were selected and only 162 of the respondents have filled the questionnaire properly by their respective enterprise's group leaders. The collected data were analyzed by employing descriptive statistics and ordered logit model by using STATA soft ware version 12. Result of this study shows that out of the predicting variables used in this study, group leaders education level, group leaders experience in similar business, the enterprise's beginning capital, loan repayment period, loan follow up, Training offered by the loan officers of OCSSCO and access to output market for the enterprises finished products were found to positively influence while the enterprises group size, additional loan they received, problem of information disclosure among members, the problem of financial statement recording experience in the business, loan interest rate, problem of power interruption and shortage of water supply around the enterprise working area have negatively influenced the group loan repayment performance of MSE's sectors in the study area. Based on this result, the author recommended that OCSSCO has to focus on the smaller the group size through which the problem of information disclosure would be resolved ,they has to give frequent training about the financial statement recording experience, they have to deal with the concerned body to solve the problem of power interruption as well as about the shortage of water supply around the enterprise's business area and encouraging them to increase their beginning capital at the enterprise start up that used to build confidence in their loan repayment performance in the study area.
Credit risk has proven to be one of the main forms of risks financial institutions are exposed to due to their very nature of business operations. The study investigated the credit risk management of microfinance institutions in Ghana. The target population for the study constituted all the microfinance institutions in Ghana and specifically the study sample came from five microfinance institutions who operate in the Ashanti region. The study used questionnaires as its main data collection instrument. Findings from the study revealed that the key credit risk sources the surveyed microfinance institutions were exposed to in their operations were corporate, individual and SMEs commercial loans. Also, it was established that most of these microfinance institutions relied mostly on accounting based method and subjective analyses to quantify their organization risk exposures, hence it was recommended that management of these microfinance institutions should make it a point to build the capacities of their credit administration department on a regular basis since any mishap in their duties may lead to series of loan defaults.