Loan Period Research Articles

Impact of Risk Administration in Rural Banks in Ghana

The ability of banks to formulate and adhere to policies and procedures that promote credit quality and curtail non-performing loans is the means to survive in the stiff competition. Inability to create and build up quality loans and credit worthy customers leads to default risk and bankruptcy as well as hampers economic growth of a country. However, little work is done to search the ways and means that enable to quality loan creation and growth as well as to determine the relationship between the theories, concepts and credit policies both at country or regional level. For the purpose of the study both primary and secondary data are used. Primary data is collected using semi structured questionnaires. The secondary data is collected from annual reports, directives, and bulletins of the bank. Descriptive statistical tools are used in analyzing the data collected. Hence, the nature of the Study is descriptive. Finally, based on the findings possible recommendations are given. These include the issues impeding loan growth and rising loan clients complaint on the bank regarding the valuing of properties offered for collateral, lengthy of loan processing, amount of loan processed and approved, loan period, and discretionary limits affecting the performance of credit management.

Policy Identification of the Working Capital Management of Medium-Sized Business

AbstractEnterprises use working capital to meet the needs of the organizations in order to perform operational activities. Hence, in order to produce optimal results, companies require sufficient working capital. Medium-scale industries have great potential in driving the economy through output and employment. As such, the purpose of this research is to analyze the working capital management policy of mediumsized business. This research employs literature study method by compiling relevant literature on the research problems. The data analysis process of this research is divided into three stages: (1) data reduction, which includes summarizing, classifying main points, focusing on important facts, and finding patterns; (2) data display, which includes data compilation and systematic data presentation; and (3) conclusion drawing and verification, which presents the research conclusions on the problem statements. Research findings suggest that working capital policy is dependant upon loan term and interest rate, which means that longer loan period leads to higher interest. Long-term loan of working capital requires debtors to pay bigger interest than short-term loan, because creditors must take into consideration the risks of uncertain future. Companies with short cash conversion cycle suggest fast retrieval of accounts receivable, good inventory management, and slower payment to supplier while maintaining corporate credibility.

Analysis of factors affecting agribusiness cooperators’ access to credit from formal sources in Abia State, Nigeria

The study focused on determinants of Agribusiness Cooperators’ access to credit in from formal sources in Abia State, Nigeria. Specifically, the study examined the socioeconomic characteristics of respondents; estimated the determinants of access to credit and ascertained the challenges associated with Agribusiness Cooperators’ borrowing from formal sources. Multistage sampling technique was adopted in sampling for location and respondents. A total of 150 respondents were sampled from list of Agribusiness Cooperators in the various communities. Data were collected using questionnaire administered on respondents using interview schedules and observation. Data were analysed using descriptive and inferential statistics such as percentages, means and the Ordinary Least Squares multiple regression model. Results indicate that Agribusiness Cooperators in the study area are predominantly young, productive and literate with average farming experience of 7 years. Findings further showed that the cooperators are predominantly males, smallholders with mean household size of 6 persons and mean income of N45,878.00 per farming season. Results of the regression model indicated that farm size, education and loan period showed expected positive signs a priori and were significant at various probability levels. Contrary to a priori expectation, experience showed a negative sign and was significant at 10% level. High interest rate, delay in loan disbursement and reluctance in repaying loans were rated the most dominant challenges to borrowing from formal sources. Based on the findings, it was recommended that cooperatives should be encouraged to organize periodic capacity building exercises for members to keep them abreast of developments vis-à-vis agribusiness investment and credit access.Keywords: loan, interest rate, loan disbursement and cooperatives

Optimal Collateralized Contracts

This paper presents a two-period optimal contracting model of collateral. A borrower values a capital good and a composite non-capital good. He privately observes an income shock in the composite good in the second period. Collateralization of both goods occurs in the optimal contract, whereas it does not under full information. Relative to full information, the capital good in the optimal contract is over-consumed in the initial loan period and under-consumed in the repayment period. The relation between forfeiture of assets and contractual distortion is summarized by a formula showing higher distortions associated with larger increases in forfeited collateral. Forfeiture is decreasing in income at the tails of the income distribution, and low income types forfeit more than high income types. In some parametric cases, forfeited collateral is globally decreasing in income with pooling at the bottom when the borrower’s initial wealth is low, or when income shock is sufficiently diffuse, resembling defaults to real world collateralized contracts.

Mortgage Interest Tax Shield and Home Mortgage Refinancing Decision

Under current low interest rates, the decision whether or not to refinance a mortgage is a timely and practically useful topic. However, the home mortgage refinancing decision is also affected by other variables such as personal tax rate. In addition, financial institutions provide different types of mortgage loans in terms of maturity (loan period), interest rate, processing cost, points (bank fee), and so forth. Several websites are available which can be used to aid making the refinancing decision. However, these websites programs are not explicitly geared towards selecting a low cost mortgage loan. Furthermore, these websites are limited in their usefulness due to inadequate assumptions or the difficulty of acquiring information required for the program. For example, a certain website requires information such as the expected future interest rate, the expected inflation rate, the standard deviation of mortgage interest rates, and so forth. To be practically useful, the assumptions should be simple and reasonably realistic. The objective of this paper is to prepare, under realistically reasonable assumptions, an Excel program which can select a low cost mortgage loan after consideration of the tax deductibility of mortgage interest rate. This paper can be used as a case problem for both undergraduate and MBA students. From the case, students learn how Excel (or any spread sheet program) can be programed and used to analyze finance problems.

Comparing patrons' renewal behavior before and after implementing more permissive loan rules

ABSTRACTThis article reports on a study of how long library patrons at 28 college and university libraries kept books checked out before and after a policy change allowing for longer circulation periods and more renewals. The behavior of most patrons remained similar before and after the policy change, with only a slight (7–14 day) lengthening of the length of circulation for many patrons. A significant minority of patrons made more extensive use of the longer loan periods, demonstrating the usefulness of the policy change for many users.

HOW BIG ARE THE EMPLOYMENT EFFECTS OF MICROLOANS? EVIDENCE FROM A CASE STUDY IN LATVIA

Microloans to small and medium-sized enterprises have become popular in many countries. However, evidence on the economic and social impact of microfinance is scarce. In an attempt to partly fill this gap, this paper looks at a case study and analyzes the economic impacts of the microloan programme of the Latvian development bank Hipoteku Banka. In our analysis, we focus on the following questions: Did the microloan programme increase employment within the supported firms? And was it able to contribute to the economic development of rural areas and the decrease of economic inequalities across regions? We find that the firms that were granted a loan from Hipoteku Banka on average considerably increased their employment during the loan period, as well as the microloan programme made a successful contribution to the economic development of rural regions in Latvia.

Patron Time-Use May Be an Effective Metric for Presenting Library Value to Policy Makers

Objective – To test a metric for library use, that could be comparable to metrics used by competing government departments, for ease of understanding by policy makers.
 
 Design – Four types of data were collected and used: Time-diaries, exit surveys, gate counts, and circulation statistics.
 
 Setting – A large public library in British Columbia, Canada.
 
 Subjects – Time-diary subjects were 445 patrons checking out materials; exit survey subjects were 185 patrons leaving the library.
 
 Methods – A paper-based time diary, prototypes of which were tested, was given to patrons who checked out library materials during a one-week period. These patrons were charged with recording the use of the checked-out items during the entire three-week loan period. From this information, the average number of hours spent with various types of loaned material (print and audio/DVD) was calculated. The average number of hours spent per item type was then applied to the circulation statistics for those items, across a month, to get a total of hours spent using all circulated material during that month. During the same one-week period of time-diary distribution, exit surveys were conducted by library staff with patrons leaving the library, asking them how long they had spent in the library during their current visit. The average number of minutes per visit was calculated and then applied to the gate count for the month, to get a total number of minutes/hours spent “resident” in the library that month. Adding the totals, a grand total of patron time-use hours was calculated. A monetary value was applied per hour, using the results of a contingent valuation study from Missoula, Montana (Dalenberg et al., 2004), in order to convert hours of library benefit into a dollar figure.
 
 Main Results – There was a 24% response rate for the time diaries (106/445). The diary entries yielded an average of 3.5 hours of time-use per print item, and 1.9 hours per DVD. The range for audio materials was quite wide, and for all item types, a few heavy users skewed the averages. Hours of secondary use (when people other than the original borrower read, listened to, or watched, the materials) were calculated, and represented 13% of the total hours. The average amount of time spent per visit was 42 minutes. Applying these averages to one month of circulation figures and gate counts, respectively, the result was that patrons spent 182,000 hours using library services in one month. Applying dollar amounts of benefit per hours spent, based on the Missoula study, the result was that patrons had received $842,000 of benefit from their use of the library in that month.
 
 Conclusions – This study confirmed that the prototype performance measure of hours of patron use, and refinements in obtaining it, was a useful tool with which to present the case for the value of libraries to policy makers. The study estimates that 90% of library use occurs off-site, and that a surprising proportion of that use is by secondary users. Future studies could refine the collection methodologies even more by collecting demographic information, by mapping user activities during branch visits, and by obtaining better information about secondary users of materials. Future research should also take into account: seasonal effects on borrowing, reading level of borrowers, and possibilities for collecting information in online formats. With these developments, it might be possible to assign “enjoyment levels” to items in library catalogs.

Microfinance and Financial Inclusion of Poor: A Ner Perspective

Microfinance has passed a long way from micro-saving to micro-credit and this journey has created an unforgettable history of developing not only the rural people but also the urban poor too especially women. Though the concept “Microfinance” refers to small financial activities like saving, credit, insurance, payment remittances etc. but have covered a wider dimension and shown a greater impact in improving socioeconomic life of poor people by providing a channel through which they are getting involvement into the financial system of a country. The poor people especially women have been always excluded from the formal financial system basically either due to social background or economic backwardness and even sometimes both. Therefore in order to overcome the challenging issues like poverty, unemployment, malnutrition, lack of formal credit support, improvement in socio-economic status, the government of India in association with NABARD and RBI introduced the concept of Self Help Groups. This paper will try to highlight the growth and progress of SHGs over different period of time, loan disbursed and repayment status with special reference to NER.

IMPACT OF LOAN CYCLE ON EMPOWERMENT IN MICRO FINANCE

The present study basically analyse the level of empowerment of people especially women in different loan cycle in the SHG loan. The study specifically examined the level of empowerment through microfinance in the region of North Kerala. Prevailing interest rate and repayment period of loan is supportive to the better utilisation of loan and thereby it brings empowerment. SHG members are participating in rural development, sustainable development, agriculture and commercial investment and thereby they are getting empowered. In the present scenario caste system and religious regulations are not supporting the women empowerment. By getting financial support to the poor automatically the whole society will get empowered. Reinvestment, loan system and financial support have significant impact on empowerment. The results of the study reveal that status of empowerment will vary according to the level of loan cycle. Higher loan cycle leads to higher empowerment.

EFFECTS OF MICROFINANCE LENDING ON WORKING CAPITAL MANAGEMENT OF MICRO AND SMALL ENTERPRISES IN NAROK TOWN KENYA.

This study sought to establish the effects of MFI’s lending on working capital management of micro and small businesses in Narok Town. The objectives of the study were to establish the effects of Microfinance lending on cash management, inventory management, receivables management and payable management of MSEs. The study used descriptive survey design and the target population comprised of 240 MSE’s. Purposive sampling technique was used to select a sample of 71 MSE’s from the population. Primary data were gathered for the study using face to face interviews with an aid of structured questionnaire. Reliability coefficient 0.7 and above was accepted. Descriptive statistics which includes percentages, frequencies, means, standard deviation and inferential statistics namely; t-test, Pearson product moment correlation and regressions were used to analyze the data. Test of significance was tested at α=0.1. The Statistical Package for Social Science (SPSS) aided the data analysis. The study established that MFI’s lending (cost of lending, loan period and loan size) positively affect working capital management (cash management, inventory management, receivables management and payable management) of MSEs in Narok Town.Â

Comparative Study of Growth and Carrageenan Content of Kappaphycus alvarezii (Doty) Doty in Pen Culture and Raft Culture in Palk Bay Waters of Ramanthapuram District, Southeast Coast of India

The cultivation of Kappaphycus alvarezii, a kappa carrageenan yielding red seaweed has been going on in different locations of the world since 1970. This seaweed has been introduced under field cultivation in more than 20 tropical countries. Philippines and Indonesia contribute to 92% of the entire global harvest of 183,000 ton dry and the other countries include Malaysia, China and Salmon Islands. In India, this alga has been introduced in the second half of 1995 and the commercial cultivation has picked up from 2006. In order to evolve an economically feasible method for commercial cultivation, this study was done for a period of one year from April 2010 to March 2011 in sub-tropical waters on Palk Bay side of Bay of Bengal of Ramanthapuram (Umiyalpuram, Mandapam) district on southeast coast of India. The experiments were carried out by two methods, 1) PEN culture i.e; cultivation in monolines enclosed with net and 2) raft method with net bottom. The minimum crop yields of 241.10±9.52 and 228.90±14.89 kg FW raft-1 were obtained in May 2010 in PEN culture and raft respectively with respective maximum ones of 325.30±11.26 and 293.10±9.83 kg FW raft-1 in October 2010. Similarly the minimum daily growth rates (DGRs) of 3.09±0.09 and 2.97±0.09 % were found in May 2010 in PEN culture and raft culture respectively with respective maximum daily growth rates (DGRs) of 3.76±0.08 % and 3.52±0.07% in October 2010. Environmental parameters like seawater temperature, salinity, nitrate and phosphate were recorded and they were found to influence the growth of the seaweed. The maximum carrageenan (SRC) content of 36.76±0.74% and 34.09±0.97% of dry weight was found in August 2010 for PEN culture and raft culture respectively whereas the minimum ones of 31.92±1.28% in December 2010 in Pen culture and 30.04±0.12% in October 2010 in raft culture. The income with mean annual crop yields would be Rs. 18,257/- and Rs. 16,063/- per month/person in PEN culture and raft respectively during the loan period and with the respective ones of Rs. 19,257/- and Rs. 18,063/- per month/ person after the loan period (after three years). In view of this, PEN culture was recommended for commercial cultivation rather than raft one in the shallow waters and this was arrived at considering the infra cost, replacement of the infra, cultivation operation, carrageenan yield and net income. Keywords: Seaweed farming, Daily growth rate, Kappaphycus, Carrageenan, Crop yield

A new Mixture model for the estimation of credit card Exposure at Default

Using a large portfolio of historical observations on defaulted loans, we estimate Exposure at Default at the level of the obligor by estimating the outstanding balance of an account, not only at the time of default, but at any time over the entire loan period. We theorize that the outstanding balance on a credit card account at any time during the loan is a function of the spending by the borrower and is also subject to the credit limit imposed by the card issuer. The predicted value is modelled as a weighted average of the estimated balance and limit, with weights depending on how likely the borrower is to have a balance greater than the limit. The weights are estimated using a discrete-time repeated events survival model to predict the probability of an account having a balance greater than its limit. The expected balance and expected limit are estimated using two panel models with random effects. We are able to get predictions which, overall, are more accurate for outstanding balance, not only at the time of default, but at any time over the entire default loan period, than any other particular technique in the literature.

Audit Report Restrictions in Debt Covenants

AbstractWhile the debt‐contracting literature has extensively examined financial covenants, there has been little attention paid to audit‐related covenants. We focus on a covenant that restricts the borrower from receiving a going‐concern audit report (GCAR covenant). We hypothesize that a debt agreement is more likely to include a GCAR covenant as the borrower's credit quality decreases and the length of the loan period increases, and that it is more likely to impose a covenant restricting the choice of auditor when the debt includes a GCAR covenant. Also, we expect that an audit client with a GCAR covenant will be charged a higher audit fee and is more likely to receive a going‐concern audit report. We test these hypotheses on a sample of firms that issue private debt. Our results generally support our hypotheses. Our study suggests that lenders rely on the auditor's assessment in contracting, and audit‐related covenants influence auditor behavior.

The optimal allocation of alternative collateral assets between different loans

This paper studies loan collateral and relationship banking. A firm has different loans (e.g. short-term and long-term loans) and alternative collateral assets. How does it allocate the collateral assets between the loans? It optimally secures a long-term loan with collateral that incurs high information costs initially and has a strong learning effect during the loan period (e.g. accounts receivables). A short-term loan is secured with collateral that requires low information investment and has a weak learning effect (e.g. government bonds). It is optimal to secure long-term loans with long-term collateral and short-term loans with short-term collateral. If the loan period is short, unsecured lending may be optimal.

Determinants of agricultural micro-credit repayment-evidence from Minna microfinance bank, Nigeria

The study assessed the determinants of agricultural micro-credit repayments by beneficiaries of Minna Micro-finance Bank, Nigeria. Multi-stage sampling technique was employed to select 180 respondents for the study while descriptive statistics and multinomial binary logit model were employed for data analyses. The study affirmed that substantial proportion of respondents (42.78%) were smallholders owning between 1.1-2.0 hectares of land. Ironically, 61.67% do not belong to cooperatives or farmers’ associations. The volume of loans disbursed to beneficiaries was a significant determinant of agricultural micro-credit repayment. The analysis further established that repayment increased with the volume of micro-credit received, as 100% and 82% of those who received above N250,000 and N200,000 - N250,000, respectively repaid compared to 74.34% of those who received between N50,000 and N100,000. Also, majority (68.89%) of the respondents indicated that the short period of loan tenor, high interest rate (55%) and loan period (54%) were major obstacles in loan acquisition. Against this backdrop, the study recommended the need for proper financial analysis of beneficiaries’ enterprises with the view to effectively ascertaining the quantum of credit needs while premising financial inflow of the bank on long term funds (without prejudice to the existing revolving loan mechanism) such as the pension contributions, with the view to enhancing the resource base of the bank and its ability to effectively support beneficiaries while guaranteeing its own sustainability. Channeling micro-credits through farmer institutions, allowing for longer loan repayment periods and premising interest on economic and social considerations will also enhance effective loan recovery. Keywords : Agricultural micro-credit repayment, volume of micro-credit, financial analysis, long term funds, cooperatives.

Application of Discriminant Analysis of Home Mortgage Loan Prepayment Risk

Whether the borrower is engaging in default risk behavior is bound to be driven by some incentives as judged by internal and external observable variables; or it can be observed from some of the characteristics of the borrower. Which type of borrowers is less reliable in credit and may prepayment is an issue of great concern to asset risk management of financial institutions holding the housing mortgage loans. Therefore, the study of the tracking and forecasting of changes in relevant factors during the loan period of each borrower is very valuable. For example, the prediction and evaluation of financial institution prepayment risk probability by changes in borrowers’ income can help prevent the borrowers’ prepayment risk behavior in advance.

Lending terms, financial literacy and formal credit accessibility

Purpose– The purpose of this paper is to investigate the relationship between commercial bank lending terms, financial literacy and access to formal credit by small and medium enterprises (SMEs).Design/methodology/approach– In this cross-sectional study, the authors surveyed 384 business owners or managers of SMEs in Uganda. The authors applied confirmatory factor analysis to reduce the number of factors and identify the important elements that capture commercial lending terms, financial literacy and access to formal credit. The authors put forward and tested two hypotheses relating to the significance of the relationship between perceived commercial bank lending terms, financial literacy and access to formal credit using structural equation modelling with analysis of moment structures 18.Findings– The results suggest a positive and significant relationship between perceived commercial bank lending terms, financial literacy and access to formal credit. Moreover, the ANOVA results serendipitously show that access to formal credit varies with type of business and turnover. However, collateral and loan repayment periods are not observed variables for commercial bank lending terms. The most significant observed variable for commercial bank lending terms is interest rates. This, together with financial literacy, explains 31 per cent of the variances in access to formal credit by SMEs in Uganda.Research limitations/implications– The study is limited to the SME firms registered and operating in Kampala, Uganda and it is possible that the results are only applicable to these firms in Uganda. Nevertheless, the findings have implications to commercial banks wishing to improve the turnover of their micro-lending schemes.Practical implications– Efforts by the stakeholders to improve financial literacy of SMEs owners and managers must be matched with favourable interest rates if access to formal credit is to be enhanced.Social implications– The findings also have implications for governments aiming at improving access to finance to overcome income inequality problems, and also improve their growth.Originality/value– The results provide initial evidence of the aggregate explanatory power of interest rates and financial literacy for the criterion variable, access to formal credit by SMEs.

On the determinant of bank loan contracts: The roles of borrowers’ ownership and board structures

Abstract Given the worldwide economic importance of bank loan financing, we empirically investigate the roles of borrowers’ ownership and board structure in bank loan terms through a comprehensive dataset, which includes the complete history of individual bank loan contracts for firms publicly listed in the Taiwan Stock Exchange (TWSE). We find that firms with smaller deviation in shareholder voting and cash flow rights, larger non-retail shareholding, fewer shares pledged by the board of directors, independent directors, and firms without dual boards are more likely to borrow from banks at lower spread. In addition, good governance practices are also associated with larger loan size or longer loan period, suggesting that banks take into account borrowers’ governance practices when designing loan contracts. This fact is consistent with the agency cost and information risk explanations of Bhojraj and Sengupta (2003) . Furthermore, this study uncovers that the beneficial effect of good governance practices on bank loan contracting is more pronounced in borrowers with high leverage and poor rating, which implies that the monitoring role of governance is more crucial in risky firms. Our findings are robust to the various characteristics of firms and loans.

Financing of Micro and Small Enterprises in China: An Exploratory Study

AbstractThe financing predicaments of micro and small enterprises (MSEs) — such as MSE owners requiring lower credit costs, longer loan repayment periods, monthly loan repayments, and more diverse security methods to reduce access barriers — suggest a need for financial inclusion of the unbanked and a future for the microfinance industry in China.