THE DETERMINANTS OF LOAN DEFAULT AMONG URBAN POOR BUSINESS WOMEN: EVIDENCE FROM A MICRO FINANCE INSTITUTION IN GHANA

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  • Department: Banking and Finance
  • Project ID: BFN2353
  • Access Fee: ₦5,000 ($14)
  • Pages: 126 Pages
  • Format: Microsoft Word
  • Views: 238
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ABSTRACT

Growth of microcredit is seen as an important way to expand financial services to the poor and unbanked, and to help reduce poverty. However, high default rate remains a major challenge for micro-lenders. Understanding the causes of default among the poor is important for devising effective strategies to deal with this problem. This study sought to identify the determinants of loan default among urban poor women in the Greater Accra Region of Ghana. The study quantifies the relative importance of borrower characteristics, macroeconomic factors (exchange rate, inflation), financial literacy, seasonality and other business and loan characteristics in explaining the likelihood of default among clients of a microcredit firm in Ghana. The study combined two main sources of data. The first is individual-level monthly repayment history for the entire population of 820 clients of a group-based lending microfinance firm in Accra. The second source of data is primary data collected from all 820 clients with information on personal and socioeconomic characteristics of clients, financial literacy, characteristics of business and loan, and uses of the microcredit obtained from the firm. A multivariate Probit regression model was used to identify the determinants of default among the clients. The findings show that business characteristics (business age, type and seasonality), macroeconomic environment (inflation and exchange rate stability), loan characteristics (loan diversion, multiple loan and loan amount) and financial literacy are the most important determinants of default. Moreover, the study shows that addition of business characteristics, loan characteristics and the macroeconomic environment diminishes the predictive power of borrower characteristics. The study suggests that MFIs should not pay too much attention to individual characteristics but rather, on the business and loan characteristics when assessing the creditworthiness of potential borrowers. The findings also suggest that MFIs should provide financial literacy lessons as part of the loan product they give to their clients to facilitate proper management of the business operations. 

THE DETERMINANTS OF LOAN DEFAULT AMONG URBAN POOR BUSINESS WOMEN: EVIDENCE FROM A MICRO FINANCE INSTITUTION IN GHANA
For more Info, call us on
+234 8130 686 500
or
+234 8093 423 853

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  • Type: Project
  • Department: Banking and Finance
  • Project ID: BFN2353
  • Access Fee: ₦5,000 ($14)
  • Pages: 126 Pages
  • Format: Microsoft Word
  • Views: 238
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    Details

    Type Project
    Department Banking and Finance
    Project ID BFN2353
    Fee ₦5,000 ($14)
    No of Pages 126 Pages
    Format Microsoft Word

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