Loan Portfolio of a Faith-based Microfinance Institution: An Empirical Analysis

Abstract

An effective tool of economic development is found in microfinance and is believed to provide sustainable mechanism for poverty alleviation. The microfinance institutions across the world operate on a few established models and have been able to make a considerable impact in the areas of financial inclusion and poverty alleviation. However, the industry also needs innovative models and products to attain the targets set under the Millennium Development Goals. In addition to this, there is a need for client-centered models in order to overcome the problems of client dissatisfaction and loan defaults that have been reported in the recent past. This study focuses on the faith-based model of microfinance that differs from mainstream microfinance basically in terms of the underlying values. Faith-based organizations have a long history of participation in the areas of human development. Apart from charity-based lending, many such organizations are also functioning as microfinance institutions that are successfully delivering financial services to the poor. There is a need to study the procedures and performance of these institutions in order to ascertain their distinctive features and potential. Along with other indicators like outreach, impact, and financial sustainability, loan portfolio of a microfinance institution is also a good indicator of sustainability and throws light upon other important features. The main objective of this study is to understand the loan portfolio of faith-based microfinance institutions. A sample of 100 loan clients was purposively selected from one faith-based microfinance institution. This microfinance institution was selected from the list of faith based institutions generated after the literature review. The factors studied were the loan repayment cycles, general demographics and, the relationship between various factors involved in loan repayment. The study also tries to understand if such institutions have any discriminatory lending policies towards clients of other faith.