Key factors for loan repayment of micro entrepreneurs in Ghana

Abstract

This thesis examines the extent to what corporate social responsibility (CSR) strategies, entrepreneurial and business skills and programmes for training and monitoring improve microbusiness performance and loan repayment rates: ‘To what extent do corporate social responsibility strategies, entrepreneurial and business skills and programmes for training and monitoring improve loan repayment rates of microfinance debtors in developing countries?’ MFIs that adopt CSR strategies provide for both financial and social empowerment services. Social empowerment services may include primary health care services, occupational skills training for microfinance debtors and debtor monitoring programmes. The 2008 credit crunch led many MFIs to abandon their CSR strategies. We analyse the case of uniCredit Ghana MFI and argue that CSR strategies contribute to public support for the MFI. This helps raise deposits and improves funding opportunities. Social empowerment investment improve microbusiness performance and loan repayment rates. We expect those MFIs that adopt CSR strategies to improve their sustainability, more than do MFIs that specialize in providing financial services only. We establish that those microfinance debtors who consider themselves endowed with entrepreneurial and business skills do not repay loans better than those microfinance debtors lacking these skills. Highly educated entrepreneurs do not repay their loans any better relative to those with primary or secondary education only. We establish that business experience is the only constituent of human capital that matters for business performance and loan repayment rates. Experienced microfinance debtors systematically repay their loans better than do those entrepreneurs lacking business experience. We observe that microfinance debtors do not agree on what skills they think are important for loan repayment probabilities. This result implies that every single microfinance debtor needs to acquire specific skills. Training programmes cannot be standardized and should be tailored towards the needs of the individual microfinance debtor. We establish that MFI loan officers neither agree on the ranking of specific skills they think are important for microfinance debtors to repay their loans promptly. This result suggests that MFI loan officers should be trained to better understand the relevance of specific entrepreneurial and business skills for microfinance entrepreneurs. We empirically establish that training programmes fail to improve loan repayment rates. Programmes for intensive microfinance debtor monitoring significantly improve loan repayment rates. Intensive monitoring is equally effective for highly and poorly educated, experienced and unexperienced, female and male microfinance debtors: MFIs may significantly improve repayment rates should they consistently monitor their microfinance debtors intensively.