Microfinance Wolves Strike on Multiple Borrowing and Loan Repayment

International Journal of Research and Innovation in Social Science (IJRISS) | Volume IV, Issue I, January 2020 | ISSN 2454–6186

Microfinance Wolves Strike on Multiple Borrowing and Loan Repayment

D. Ravichandran
Senior Lecturer, Department of Business and Management Studies, Faculty of Communication and Business Studies, Trincomalee Campus, Eastern University Sri Lanka

Abstract: – Studies on multiple loans and their effect on repayment of loans between clients and the sustainability of microfinance providers show conflicting results. Some studies indicate that multiple indebtedness has a positive effect on loan repayment and Micro Finance Institutions(MFIs) sustainability, while others show that it leads to over-indebtedness and, consequently, non-compliance with the loan. Therefore, this study analyzed the incidence of multiple loans, the reasons for multiple loans and the effects of multiple loans on loan repayment in Batticaloa District. The target population comprised a total of 22,645 loan borrowers out of which a sample of 100 was picked using simple random sampling, which enable every member of the population have an equal and independent chance of being selected as respondents and also simplest, most convenient and bias free selection method. The data was collected by use of self-developed questionnaire issued to the microcredit borrowers, in depth interviews had with microcredit group leaders and MFIs’ Manager and staff. Results showed that prevalence of multiple borrowing at Batticaloa District was very high. Over 85% of the 100 microfinance clients had at least two loans from different MFIs at the same time. In addition, about 47% also borrowed from individual lenders. Major reasons for multiple borrowing were loan recycling, insufficient loans from MFIs, and family obligations. Over 65% of the respondents had problems in loan repayment because of multiple pending loans. Researcher found that age group and number of dependents of the respondent significantly influenced the number of loan contracts.

Keywords: Impact; Loan repayment; Multiple borrowing;

I. INTRODUCTION

Microfinance has been recognized as an essential socio-economic and financial mechanism for poverty alleviation, promoting entrepreneurial development and increasing the profile of disadvantaged people innumerous countries throughout the world (Hossain et al., 2012). Microfinance serves to promote rural livelihoods and urban poor by the creation of entrepreneurship opportunities that encourage the elimination of unemployment by creating potential business based on their interest and skill. Microfinance targets to poor people because these people usually lack of collateral, no steady employment and verifiable credit history, which therefore, cannot even meet the most minimal qualifications to gain access to normal banking. Besides, it can avoid poor people lend with illegal banking such as moneylender or loan shark that charge unreasonable interest rate.

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