Loan Size Research Articles

EVALUATING NON-PERFORMING ASSETS IN SELF-HELP GROUP-BANK LINKAGE PROGRAMME: ECONOMIC INSIGHTS FROM CENTRAL AND NORTHERN REGIONS OF INDIA

The Self-Help Group Bank Linkage Programme (SHG-BLP) plays a crucial role in providing affordable and timely credit to India’s impoverished and vulnerable populations, who are often excluded from formal credit delivery systems. However, the high incidence of Non-Performing Assets (NPAs) within this sector poses a significant barrier to the continued availability of formal loans, as elevated NPAs disrupt the credit cycle and undermine efforts to alleviate poverty. Historically, the central and northern states of India have recorded NPAs above the national average within the SHG-BLP framework. In this study, we employ multiple linear regression analysis to identify the factors contributing to high NPAs in these regions. Our findings reveal a positive correlation between larger loans and higher NPAs, emphasizing the need for thorough risk assessment and ongoing monitoring when extending substantial credit to SHG members. Additionally, the regression analysis underscores the importance of considering gender dynamics within SHGs. Although women-led SHGs generally perform well, there are inherent credit risks, particularly as both loan size and group size increase. Targeted interventions to support women-led SHGs could enhance repayment rates and reduce NPAs, given that the majority of SHG loans in these regions are managed by female-led groups. KEY WORDS: Non-Performing Asset, Self-Help Group, Bank-Linkage Programme, Loan, Financial Inclusion, Multiple Linear Regression.

Determinants of Microfinance Demand (Evidence from Chiredzi Smallholder Resettled Sugarcane Farmers in Zimbabwe)

Despite the MFI insurgency, agricultural financing remains critically low, even though microcredit is widely accepted as both a substitute and compliment to formal credit. Zimbabwe is an agro-based economy and very little is known about the determinants of microcredit demand and microcredit size in smallholder resettled sugarcane farmers. Research is concentrated in short-term agriculture activities. Thus, this study aims to fill the unattended gap in lagged returns agriculture activities such as sugarcane production which takes at least a year to mature, hence, the greater need for agriculture financing alternatives such as microfinance. The study examined the determinants of both microcredit demand and loan size (magnitude of microcredit participation) by smallholder resettled A2 sugarcane farmers in Chiredzi. Primary data from 370 smallholder resettled sugarcane farmers (214 borrower participants and 156 non-borrower participants) were used. Probit and Tobit regression models were used for data analysis in STATA. Operational costs, interest rate, grace period, and land size significantly affect both the demand for microcredit and microcredit size, while education, household farming assets, extension services, and payback period significantly affect microfinance demand, and risk attitude/perception additionally determine microcredit size. Special microfinance schemes best suitable for the agriculture sector and crop/plant-specific agriculture financing schemes, currency, and macroeconomic stability are the major policy recommendations.

The Shadow Cost of Collateral

Abstract We quantify the cost of pledging collateral for small businesses by exploiting a regulatory quirk of the SBA disaster lending program in which firms are exempt from posting collateral if their loan size is below a threshold. Firms bunch their loans below the threshold, and the resulting distortion in the loan size distribution reveals the magnitude of the collateral cost. The collateral cost is substantial and varies across collateral types, business sectors, and collateral laws in ways consistent with flexibility-based theories. Our findings have implications for firms’ borrowing constraints and disaster lending program designs. (JEL E44, E51, G21, G23, G33)

Analisis Peran Lembaga Keuangan Terhadap Pendapatan Usaha Mikro Kecil dan Menengah di Madura

Micro, small, and medium enterprises play an important role in the economic development of a country, but the growth of MSMEs still often faces various challenges and has not been as expected. The low capital owned and the difficulty of MSMEs in accessing sources of financing are still problems that hinder the growth of MSME businesses. The role of financial institutions in the income of micro, small and medium enterprises in the Madura region is the focus of this study. The quantitative technique used in this study is linear regression analysis using dummy variables. This study found that the income of micro, small, and medium enterprises in Madura is significantly affected by the test factors of loan size, loan fee, and loan tenure. Of the three variables, the loan cost variable has the greatest influence on MSME income. The dummy variable of loan size shows an increase in income for MSME actors of 665,846.73 rupiah. The dummy variable of loan costs shows an increase in income for MSME actors of 3,708,001,234 rupiah. And the variable loan duration is 50,789.79 which shows that the loan duration has a positive effect on MSME income of 50,789.79 rupiah.

The imprint effect of initial institutional environments and bank financing in family businesses

The initial imprint embedded in family business origin provides us with favorable support for identifying how past institutional environments and then current governance characteristics influence financing. This study investigates the influence of family business origin on loan borrowing, and finds that restructured family firms (RFFs), which are formed through the restructuring of collective-ownership enterprises, are likely to obtain more loans compared to entrepreneurial counterparts (EFFs). The effect varies with local marketization, family control rights, and intergenerational succession. Our findings suggest that restructured family firms have a sounder modern enterprise system, less information asymmetry, and consequently pose less credit risk, which allows them to access loans more easily. In addition, institutional differences stemming from the origin of the firms affect the composition and cost of bank financing. RFFs outperform EFFs in terms of the size of non-local bank loans and the cost of loans. Overall, this study shows that the institutional environment of family firms at the founding stage has a long-term impact on future financing.

An Exploration on Success and Failure of Cooperatives and Microfinance

Cooperatives and microfinances are regarded as a vehicle of development. The history of cooperatives and microfinance development is relatively short which dates back to the 1970s. With the assistance of cooperatives and microfinances, households can expand opportunities for income generation. Small size of loan, group savings, small-scale entrepreneurs, diversified utilization and simple and flexible terms and conditions on credit are the determining characteristics of microfinance and cooperatives. Basically this study is based on the review of past studies and research documents and has tried to collect detail information regarding the history, success and failure of microfinance and cooperatives. It covers the information of advanced countries as well as developing countries like Nepal. In course of research, the study found that cooperatives and microfinance have contributed too many households including backward people, women and marginalized groups. It has assisted to poverty eradication, inequality reduction, women empowerment, unemployment reduction which all result to economic development. These outcomes lead to the success of cooperatives and microfinance whereas public policy issues, fraud of the management team, lack of accountability, unproductive use of cooperatives and microfinance lead towards its failure. On the basis of the findings, it can be concluded that there is rapidly expanding number and size of cooperatives and microfinance institutions in many parts of the world, and in course of time these are moving towards commercial sector rather than being oriented to backward people.

Macroprudential policy and systemic risk in G20 nations

Using a panel of 496 banks from the G20 nations, the study assesses the role of macroprudential policies in reducing systemic risk. The study further assesses the utility of these policies in conjunction with monetary policy instruments and bank and country-specific characteristics and finds the significant impact of macroprudential policies in curbing systemic risk and promoting economic stability. The study finds this relationship to hold regardless of economic conditions like inflationary pressure and financial distress. The result highlights that easing macroprudential policies during financial distress can help banks cope with systemic losses. We split the macroprudential policies into policies targeting the demand and supply of loans and find complementarity among the policies to reduce systemic risk. Our results demonstrate the heterogenous effect of macroprudential policies in limiting systemic risk, with the effect varying with bank size, leverage, liquidity, and concentration of loans. Finally, we find a moderating role of these policies in limiting the impact of uncertainties on systemic risk.

The effects of FinTech adoption on bank loan spreads

PurposeThis paper aims to examine the impact of traditional banks’ financial technology (FinTech) adoption on corporate loan spreads and lending practices.Design/methodology/approachThis study examines the impact of FinTech adoption by banks on corporate loan spreads and lending practices. By analyzing data from bank 10-K filings, we develop a novel metric to assess FinTech adoption at the individual bank level. Our analysis reveals a significant positive correlation between increased FinTech adoption and higher corporate loan spreads, particularly for loans that are relatively informationally opaque. This causality is further validated through a quasi-natural experiment. Additionally, we identify trends toward loans with smaller sizes and longer maturities in banks with advanced FinTech integration.FindingsUsing a sample of corporate loans issued from 1993 to 2020, this paper documents a significant positive relationship between a bank’s increased FinTech adoption and higher loan spreads. This correlation is especially noticeable for loans that are informationally opaque. Moreover, the paper reveals trends toward smaller loan sizes and longer maturities with advanced FinTech integration in banks. Overall, these findings indicate FinTech enhances efficiency in processing hard information and holds the potential to enhance financial inclusion.Originality/valueThis paper contributes to two significant strands of finance literature. First, it highlights how banks with advanced FinTech integration gain advantages through enhanced processing of hard information. Furthermore, it underscores the role of FinTech in promoting financial inclusion, particularly for those borrowers facing informational opacity.

How do stock markets in emerging economies respond to World Bank loan approvals?

This paper examines the impact of World Bank loan approvals on equity markets in borrowing countries. We exploit a rich dataset with World Bank loan commitments and daily stock market returns for 47 emerging markets, allowing us to study short run market reactions to news about World Bank programs. These programs fall into three categories: investment projects, structural adjustment loans that tie future macroeconomic reforms to future loan disbursements (prior to FY2006), and development policy loans that reward completed macroeconomic reforms with current loan disbursements (since FY2006). Event study analysis shows positive abnormal stock market returns on the trading day following investment project loan announcements. The effect depends on loan size as well as market characteristics. Structural adjustment loan announcements are followed by negative abnormal returns; development policy loan announcements, in contrast, are considered good news. This suggests that expected macroeconomic implications of policy change in response to loan conditions drive market reactions, and that changes in the conditionality and disbursement structure of World Bank policy lending were successful in improving market reactions to World Bank programs.

Macroprudential policy effectiveness and interaction with monetary policy: Lessons from debt service-to-income cap implementation in Kazakhstan

We take advantage of the early adoption of the debt-service-to-income cap (DSTI) measure in Kazakhstan, as well as available granular information from the local credit registry to study the effects of macroprudential instruments on core financial stability parameters. Our results show that implementation of a DSTI cap of 50 % leads to around a 9 % decrease in 12 months in the amount of outstanding debt on average for the range of credits originated just around the introduction of the DSTI cap. We find that DSTI cap implementation decreased the probability of delinquency rates of loans by about 20 % in 12 months on average compared to credits granted before the realization of the DSTI cap. We provide evidence on the importance of loan size heterogeneity across time when estimating the impact of macro-prudential intervention, which is partly overlooked in the existing literature. Finally, our results suggest that macroprudential and monetary policy tools can be complementary depending on the specific business cycle developments.

Sand or grease effect? The impact of Islamic banking on the social mission of microfinance institutions

PurposeIslamic banking and microfinance institutions (MFIs) share the core objective of serving the underprivileged. This study aims to investigate whether Islamic banking development facilitates (greases) or hinders (sands) the social mission of MFIs.Design/methodology/approachData for 19 countries covering the period 2010–2018 were collected from the World Bank, Bank Focus and International Monetary Funds and analyzed using conventional econometric methods. Endogeneity-corrected techniques and alternative proxies were employed to ensure robust results.FindingsThe study revealed that Islamic banking development (proxied by the size of the Islamic banking assets) weakens the depth of outreach of MFIs (measured by average loan size). In countries with growing Islamic banking, MFIs appear to shift their focus toward wealthier clients, potentially due to market saturation among the poor. This is evidenced by MFIs offering larger loans, suggesting a mission drift toward profit maximization. Therefore, it can be inferred that competition from Islamic banks, to some extent, erodes the social mission of MFIs.Originality/valueThis study is among the few to examine the recent and comprehensive relationship between Islamic banking development and the social mission of MFIs.

Analyzing Determinants of Loan Repayment Performance at Grameen Koota: A Comprehensive Study in Bangalore District

Microfinance institutions (MFIs) are pivotal in promoting financial inclusion by providing financial services to underbanked populations. This study investigates the key determinants influencing loan repayment performance at Grameen Koota, a leading MFI in the Bangalore district. Employing a comprehensive mixed-method approach, the research integrates quantitative analysis of loan repayment data from 50 borrowers with qualitative interviews involving 20 borrowers and five loan officers. The findings indicate that borrower income stability, financial literacy, loan size, and loan duration significantly affect repayment performance. Specifically, higher income stability and greater financial literacy correlate with better repayment rates, while smaller loan sizes and shorter loan durations enhance repayment performance. Qualitative insights emphasize the importance of solid borrower relationships with loan officers and community support systems in addressing repayment challenges. These relationships and support mechanisms are crucial for timely and successful loan repayment. This paper contributes valuable insights into the microfinance sector within the urban Bangalore context, adding to the limited research on repayment determinants in MFIs operating in urban Indian settings. The study suggests that implementing financial literacy programs, offering manageable loan sizes, and fostering robust borrower support systems can significantly improve loan repayment rates. The research highlights the need for MFIs to focus on borrower education and community engagement to enhance financial inclusion and sustainability. This comprehensive analysis of loan repayment performance at Grameen Koota offers practical recommendations for MFIs to improve their operational strategies and better serve their clients, ultimately contributing to the broader goal of financial inclusion and economic development.

Review of Literature on Determinants of Loan Repayment Performance in Microfinance Institutions

This article presents a comprehensive literature review on the determinants of loan repayment performance in microfinance institutions (MFIs). The review aims to enhance the understanding of borrower behaviour regarding loan repayment, focusing on socio-economic, institutional, and motivational factors. It synthesises findings from various studies, including the Indian Institute for Mother and Child (IIMC), a nonprofit Indian MFI, to identify critical determinants influencing borrowers' ability to repay loans. Factors such as income stability, education level, financial literacy, and family size are highlighted as significant socio-economic determinants. Loan-specific factors, including loan size, repayment period, and supervision, are also critical. Institutional practices like credit assessment techniques, loan structuring, and technological adoption are examined alongside social factors such as peer pressure, social cohesiveness, and community support systems. Additionally, the review explores borrowers' motivation for taking out additional loans, finding that the drive to reach the maximum loan level positively impacts repayment performance. Empirical evidence suggests that repayment rates increase as borrowers approach their loan limits. The article concludes with recommendations for MFIs to improve their operational strategies by addressing these determinants, thereby enhancing loan repayment rates and contributing to the sustainability and effectiveness of microfinance programs.

Driving A-loan: Automobile debt, neighborhood race, and the COVID-19 pandemic

COVID-19 altered travel patterns in the U.S. Studies have analyzed the effect of the pandemic on travel mode, including working from home, but few have focused on automobile ownership—a relationship with potentially long-term consequences for accessibility, household budgets and debt, and policy efforts to meet climate goals.To understand the association between the pandemic and automobile ownership, we rely on a unique credit panel dataset from Experian and examine three different automobile loan-related outcome measures: annualized growth rate of new automobile loan balances, average new loan size, and the number of new loans. We focus specifically on changes across loans in neighborhoods by race/ethnicity, hypothesizing larger increases in automobile debt in Black and Latino/a neighborhoods, where workers are less likely to be able to telework. The annualized growth rate of new automobile loans increased during the pandemic across all neighborhoods by race/ethnicity, increasing most rapidly in Latino/a neighborhoods. Controlling for other factors, loan size increased similarly across neighborhoods by race/ethnicity. The increase in automobile lending in Latino/a neighborhoods, therefore, likely was explained by a significant uptick in the number of new loans.The growth in automobile lending during the pandemic was potentially prompted by pandemic-induced changes in the need for automobiles and facilitated by an expanded social safety net. As the pandemic and its various forms of public financial assistance recede, the findings underscore the importance of ongoing assistance in enabling automobile ownership or shared access among households with limited means whose livelihoods depend on the access that vehicles provide.

The Micro-Effect of Monetary Policy on the Misallocation of Credit

The structural effects of monetary policy and these effects impact on credit allocation are crucial facets of monetary policy research. This study initially estimates China’s monetary policy based on the GDP growth target and CPI target found in the Chinese Government’s Annual Work Report. Subsequently, it quantifies the extent of credit misallocation among Chinese firms using data from listed companies from the years 2013 to 2022. Finally, we empirically investigate the repercussions of expansionary monetary policy shocks on credit misallocation, focusing on micro-firms. Empirical findings reveal that expansionary monetary policy significantly exacerbates credit misallocation, particularly in underfinanced firms. Mechanistic analysis suggests that a preference for loan size in lending behavior constitutes a major factor contributing to credit misallocation among firms.

COVID-19, trade and gender in Bangladesh

The aim of the paper was to assess the nexus between COVID 19, trade and gender. Since readymade garments (RMG) and remittances (i.e. services exports) dominant exports in Bangladesh, the paper analyses the impact of the COVID-19 via the RMG and remittance shocks on women workers and entrepreneurs in Bangladesh. The economic and social impacts on trade and COVID 19 are large in Bangladesh. Supportive measures were needed to address these deleterious impacts. The paper recommends tapping into the potential for job creation in ready-made garment and service sectors with supporting policies to alleviate women’s unpaid care work, to reduce gender-based violence in the public space and at work and to upgrade women’s skills – in particular, digital skills to accompany the economic transformation to a shift towards the ICT and service sector. It was also suggested that the government should ensure that support packages reach women entrepreneurs by partnering up with micro-finance institutions and offer reduced collaterals, prolonged repayment timeline and flexibility as to the size of the interest free loan.

Is greenwashing beneficial for corporate access to financing? Evidence from China

We discuss the dual impacts of corporate greenwashing on access to financing. Using data from China's listed firms from 2007 to 2022 and an insightful measurement of greenwashing that uses a machine learning approach, we find that greater greenwashing increases the size of bank loans, the most important financing tool in China. However, we confirm that the effect of greenwashing on promoting financing is inefficient, as it aggravates debt overhang. The results show that media coverage, administrative litigation, and industrial and regional competition can mitigate the effect of greenwashing on financing. Our findings have policy implications for corporate sustainability.

Influence of Loan Size on Growth of Women Entrepreneurship in Rubirizi District, Uganda

Women have actively participated in the economic development of many nations. However, women-owned enterprises have continued to face tough competition in the market. Resultantly, most of their businesses collapse at the infancy stage leaving many women languishing in poverty. This is against the Sustainable Development Goals (SDGs), especially on poverty (SDG 1), zero hunger (SDG 2), and gender equality (SDG 5). This study sought to evaluate the influence of loan sizes on the growth of women entrepreneurship in Rubirizi District in Uganda. The study specifically sought to examine the extent to which loan size affects the growth of women entrepreneurship in the Rubirizi District of Uganda. The study was anchored on a Resource Based Theory. The study adopted a quantitative approach while a descriptive research design was used to describe the respondents’ opinions numerically in statistical terms. The target population constituted 3720 participants from which a sample size of 361 was selected using the Sloven formula. Primary data was collected using structured questionnaires framed on a Likert scale of 1-5. Respondents were selected randomly using stratified and simple random sampling techniques. Quantitative data was analyzed using descriptive and inferential statistics. Descriptive statistics analyzed the responses obtained from the research questions while inferential statistics showed the influence of the independent variables on the dependent variable. The null hypothesis was tested at a 0.05 significance level. The analyzed data was displayed by use of suitable frequency distribution tables. The results showed that loan size is statistically insignificant in the growth of women entrepreneurship (P=.334, P>0.05). The study concluded that there is no statistically significant relationship between loan sizes obtained from Village Saving Loan Associations and the growth of women's entrepreneurship. Keywords: Entrepreneurship, Loan Size, Growth, Village Savings, Loan Associations

Nexus between good governance and financial sustainability: evidence from microfinance sector of India

PurposeMicrofinance emerged as an essential catalyst for socio-economic development and financial inclusion to reduce poverty. Microfinance institutions cannot meet their primary objective of poverty reduction if they are not sustainable financially. With the theoretical support of profit incentive theory, this paper aims to investigate the impact of organizational structure (OS), growth outreach (average loan per borrower [ALPB] and number of active borrowers), women empowerment (percentage of women borrowers [PWB]), liquidity, leverage and cost efficiency (cost per borrower) on the financial sustainability of microfinance providers (MFPs) in India and explore the possible moderating effect of the national governance indicators (NGIs).Design/methodology/approachA financial sustainability index has been developed by using principal components analysis, including both conventional measures (return of assets and return on equity) and efficiency measures (operational self-sufficiency and financial self-sufficiency). Due to the existence of endogeneity and heteroskedasticity, this study uses two-step system generalized method of moments estimates to examine the relationships for a period of 2006 to 2018.FindingsThe finding reveals that there is a strong significant relationship between financial sustainability and its influential factors. Organizatioanl Structure, loan size, women borrowers, Gross Domestic Products and inflation enhance the financial sustainability of India’s microfinance sector. However, a number of borrowers, liquidity, leverage and operating costs negatively affect the financial sustainability of MFPs of India. The estimates demonstrate that NGIs significantly moderate the association between financial sustainability and its influential factors. The NGIs negatively affect the positive impact of Organizatioanl Structure on financial sustainability. National governance increases the positive effect of loan size (ALPB) and reduces the negative effect of a number of borrowers and leverage on the financial sustainability of MFPs of India. However, NGIs negatively affect the positive relationship between Percentage of Women Borrowers and Financial sustainability of Microfinance Providers of India.Originality/valueTo the best of the authors’ knowledge, this study is the first of its kind that incorporates all of the six dimensions of the National Governance Indicators (NGIs) and uses as a moderator. Secondly, a financial sustainability index has been developed for measuring the financial sustainability of Microfinance Providers (MFPs).

Subsidized wages, small businesses, and exports: Evidence from the paycheck protection program

AbstractThe easily forgivable federal loans offered through the Paycheck Protection Program (PPP) to offset the impact of the COVID‐19 recession provide a unique opportunity to investigate whether subsidizing the costs of labor for small firms can increase exports in the whole industry. The main eligibility rule to receive these loans, i.e., having less than 500 employees in 2019 and the size of loans, were dependent on the size of the firm prior to the COVID‐19 pandemic. This implies a plausibly exogenous variation in the size of the PPP loans across states and industries. We exploit this exogenous variation in the size of PPP loans and estimate a difference‐in‐differences model that allows for heterogenous treatment effect to measure the instantaneous and dynamic effects of these loans. We find that a 10% increase in the size of PPP loans in 2020 and 2021 leads to 0.27% and 0.37% increase in exports in a given state‐industry. The 2020 loans appear to have no lasting effect beyond the quarter they are awarded. The 2021 loans, however, displayed a more dynamic effect and a 10% increase in the size of these loans in one quarter would lead to 0.28% increase in the value of exports three quarters later. In addition to estimating the average effect of these loans, we show that the effects of the loans are significantly heterogeneous across industries and the per‐dollar effect of these loans decreases as the loan size (per employee) increases.