Loan Size Research Articles

Impact of the interest rate ceiling on credit cost, loan size, and informal credit in the microfinance sector: evidence from a household survey in Cambodia

Impact of the interest rate ceiling on credit cost, loan size, and informal credit in the microfinance sector: evidence from a household survey in Cambodia

Impact of Microfinance on Poverty Reduction: A Case Study of Khushhali Bank Mirpur Khas District

Micro finance banks are an important tools to alleviate the poverty. They effectively helps the poor people by increasing their income level. The present study is designed to explore the impact of microfinance on poverty reduction in the Mirpurkhas district, using Khushhalibank as a case study. It examine the size of MF loan and effect of this loan on income level of beneficiaries. Analyzed the different variables like as size of loan, living standard and their impact on poverty rate. Sample of 300 respondent was taken randomly by using close ended questionnaire mainly focus on the customers of the Khushhalibank Mirpurkhas branch .Further raw data was analyzed with the help of SPSS 22.0 software and PLS . Finding concludes that microfinance is an effective tool for poverty alleviation, as it helps increase income and improve the living standards of the poor. Further suggests that microfinance institutions provide more effective opportunities for people living below the poverty line to invest money/capital based on their needs, experience, and knowledge. The study also suggests policy recommendations for planned improvements. The literature review highlights the importance of microfinance in poverty reduction, and how it has played a significant role in the economic development of people in rural areas. The study concludes that microfinance can be a powerful instrument in mitigating rural poverty.

The influence of external governance mechanisms on the performance of microfinance institutions in Togo

PurposeThis paper aims to assess the effects of external governance mechanisms on the performance of microfinance institutions (MFIs) in Togo.Design/methodology/approachUsing annual time series data from a sample of 30 MFIs during the period 2011–2015, the authors apply panel data econometrics in their estimations.FindingsThe results indicate that the notation by a rating agency positively and significantly affects the financial return of MFIs. The quality and the regularity of the audits negatively and significantly influence the financial performance (measured by return on assets and operating self-sufficiency) but favorably and significantly influence social performance (increased number of active borrowers (NAB) and reduced size of loans). Furthermore, supervision increases the amount of individual loans but decreases the NAB, which means deterioration in social performance. Overall, this paper shows that external governance mechanisms significantly affect the performance of Togolese MFIs, but with varying effects depending on the mechanism considered.Research limitations/implicationsThe sample size of 30 MFIs is small, and the geographic coverage of the study is restricted to MFIs operating in the city of Lomé, Togo. The authors did not have access to the information regarding the portfolio at risk at 30 days, even though it is a measure of financial performance. Likewise, we did not have access to the appendices to the financial statements for the calculation of prudential ratios. This method, which consists of asking the institutions using a questionnaire if they comply with prudential standards, may be biased because this study cannot verify the authenticity of the responses given that the standards are quantitative.Practical implicationsThe study findings advocate that improving the financial and social performance of MFIs requires improving the quality of external governance mechanisms. MFIs should then pay close attention to well-functioning external governance mechanisms.Social implicationsAs MFIs are key social actors in a society, all mechanisms that contribute to their efficiency benefit society.Originality/valueThis study contributes to the corporate governance literature by showing that external governance mechanisms influence performance. These external mechanisms are complementary disciplinary measures to internal governance mechanisms and other tools.

A Survey of Banks in Ghana's Credit Risk Management Practices

In recent times, banks and other financial institutions that lend money to customers have placed a high priority on credit risk management. To manage credit risk, banks employ customer evaluation systems, loan size restrictions, credit checks, flexible loan repayment plans, and fines Hence, the present study focuses on the credit risk management practices used in banks, to identify the internal control measures used in mitigating credit risk in banks and to examine the challenges faced in implementing credit risk management practices. The Ordinal Logistic Regression(OLR) was used to identify the relationships between the response variables, e.g. management support, credit risk identification, internal control measuers and credit risk management surveys. The independent variables were calculated on an ordered, 5-point Linear scale for the responding participants. In this study, log lit function was chosen, that demonstrated the model appropriateness. One of the main finding is that in banks, credit management risk is reduced when managers implement and adhere to responsible credit risk management procedures, viable client appraisal credit management system, regular credit checks, flexible credit repayment systems to encourage and improve loan repayment, were highly significant with the respondents’ positive initiative amidst credit risk management practices in banks.

Credit Rationing and Race in Two Brazilian Cities

This paper analyzes a survey of individual microentrepreneurs’ (MEI) access to credit for business, broken down by their color or race in two Brazilian cities: Rio de Janeiro and Salvador. The central hypothesis of this study was that color or race is a significant predictor for credit rationing in both cities. However, the most crucial variables to explain the difference in credit approval were primarily related to credit risk operation—adverse selection, moral hazard, and collateral—as expressed by predictor: loan size and credit restriction (inversely correlated to odds of credit approval). The city of the loan operation had a robust explanatory power, with credit more accessible in Rio de Janeiro than in Salvador. Evidence of racial discrimination in the credit markets for business affected not all Afro-Brazilian MEI but blacks compared with white and brown MEI. Lenders could treat potential borrowers based on a pigmentocratic pattern, with this issue appearing more clearly in Rio de Janeiro. Further inquiries in this realm are recommended, preferably with a larger sample and a survey covering all Brazilian domestic territory.

Is there an optimal microcredit size to maximize the social and financial efficiencies of microfinance institutions?

Financial intermediation theory posits that a smaller loan size triggers a higher cost per dollar lent. This leads to question whether microfinance can become a self-sustainable industry. Hence, in microfinance innovations like loans without collateral, progressive loans, solidarity groups and relational lending are employed to reduce asymmetric information costs, adverse selection, and moral hazard while serving the poorest people. Crucially, we find a non-linear U-shaped effect of loan size on financial and social efficiencies. This reconciles the two opposite strands of the literature, aligning microfinance and banking central principles. The major implication of this study is that, unlike banking, microfinance institutions can grant small size loans while simultaneously obtaining high levels of financial and social efficiency. Indeed, our findings do not support the widely debated mission drift assumption since loan size does not generate a trade-off between financial and social outcomes. Therefore, loan size is a core management variable.

Liability for illegal execution of activities on provision of consumer credit (loans): current status and perspectives for improvement

Consumer lending services are among the most demanded in the financial market. The high socio-economic significance of the activities of entities providing consumer loans is increasing in the context of regional imbalances in the implementation of banking services and the focus of credit institutions on clients with a certain income and stable income. Solving the problems of the availability of financial services for citizens living in small settlements, as well as persons who cannot receive funds from credit institutions due to low income, negative credit history, lack of collateral, microcredit organizations increase the purchasing power of the population, maintain the standard of living socially vulnerable citizens, stimulate the country's economy, involving (through investment) low-income strata in economic processes, making tax payments. The increased requirements for professional lenders determined the expansion of the illegal financial services sector, supported by high consumer demand. In order to counteract the illegal activities of illegal creditors and protect the interests of consumers of credit services, the legislator established administrative and criminal liability.The analysis of the current norms, which provide for liability for illegal activities for the provision of consumer loans (loans), carried out in the course of the study, made it possible to identify technical and legal flaws in the content of Art. 14.56 of the Administrative Code and enshrined in 2021 Art. 171.5 of the Criminal Code.Having identified the problems arising in the implementation of Art. 14.56 of the Administrative Code in practice, the author proposes to exclude from the disposition of this norm the signs that specify the subject of an administrative offense (legal entity, individual entrepreneur). The inevitability of the liability of illegal usurers will be ensured by changing the approach to determining the moment when illegal professional activities for the provision of consumer loans (Art. 14.56 of the Administrative Code) are concluded from the date of the conclusion of the consumer loan agreement on the day the creditor submits executive documents for organizing the enforcement of court decisions on the collection of the corresponding debt.Having determined the disposition of Art. 171.5 of the Criminal Code casually, with a triple reference-blanketness, the legislator not only deviated from the rules of legal technique, but also disoriented the law enforcement officer in the content of the criminal law prohibition. The author substantiates the proposals to state Art. 171.5 of the Criminal Code in a new edition, excluding the name of the violated law and detailing the signs of the subject of the crime. As crimi-forming signs, the composition covered by Art. 171.5 of the Criminal Code, it was proposed to determine alternatively: the large size of consumer loans (loans) issued by an illegal lender (over 2 million 250 thousand rubles); administrative punishment of a person under Art. 14.56 of the Administrative Code.

Agricultural financing and economic performance in the Obudu local government area of cross River State, Nigeria

One of the challenges facing agricultural sector development in Nigeria is inadequate financing by the government and financial institutions. This poor agricultural funding has an impact on economic activities. Thus, this study investigated the connection between agricultural funding and economic performance in Cross Rivers State's Obudu Local Government Area (LGA). The survey study methodology was employed, and a questionnaire was used as its primary data source, combined with a stratified sample technique. The targeted population was restricted to farmers and agriculturalists in the study area. Descriptive statistics, such as frequency and percentages tables, were calculated, and the data gathered from the questionnaire were compiled, computed, and analysed. The results of hypothesis testing showed a relationship between agricultural finance and economic performance, as well as a connection between agricultural credit schemes and agricultural sector expansion, using analysis of variance (ANOVA) as the statistical technique. They also showed that credit programmes for agricultural finance encourage the expansion of the agricultural sector, which improves economic performance, as manifested in economic growth and development. The study recommends, firstly, that the government release grants to farmers at regular intervals to support their activities. Secondly, it is necessary to raise the level and size of agricultural loans through the reduction of interest rates to allow for more economic development in the country. The government should implement an effective and efficient supervisory framework to monitor interest rate regulation within the agricultural loan policy.

Political Institutions and Global Project Finance Loans

Abstract This paper explores the link between political institutions and the size of global bank loans received to fund project finance (PF) transactions, a commonly used funding method for domestic infrastructure construction. We theorize that lenders’ political risk assessments lead to a prioritization of political predictability over other institutional features of host countries. This indicates that, all else being equal, full democracies and politically closed regimes have advantages in attracting global PF capital, while hybrid regimes are least likely to receive global funds for similar projects. Using the global PF deals reported by the DealScan database and data on political institutions and economic indicators, we show that the relationship between host country regime type and global bank loans is indeed U-shaped. Our additional analysis demonstrates that a greater PF investment is associated with a lower hazard rate of regime failure in host autocracies, particularly in the form of an irregular exit by a dictator. Overall, our findings suggest that global bank loans, mostly originating from economically advanced democracies, contribute to infrastructure funding in dictatorships that might not otherwise be available through domestic or sovereign borrowing channels.

The Impact of Sustainable Supply-Chain Partnership on Bank Loans: Evidence from Chinese-Listed Firms

With the rapid development of economic globalization, keeping the global supply chains sustainable is becoming increasingly important in improving supply chain performance and firm value. To fully understand the role of the supply chain relationship, it is necessary to comprehensively assess different characteristics of supply chain partnership in achieving sustainability goals. This study explores the implication of concentrated supply-chain partnership on loan features. Using a sample of Chinese-listed firms, we find that concentrated customer or supplier bases positively influence loan features, including loan size, loan maturity, and loan cost. We propose that concentrated customer and supplier bases influence the loan features through different mediators. Through mediating analysis, concentrated customer bases affect loan features through better corporate governance and lower operational risk, and concentrated supplier bases through lower operational cost and longer accounts payable cycle. The benefit of a concentrated chain partnership is more pronounced when customers or suppliers have a greater certification role, less uncertainty, and stronger geographical advantage. The results are robust to instrumental variable analysis, propensity-matched analysis, and alternative measures of chain partnership concentration. Findings in this study have important implications for understanding the sustainable supply-chain partnership management and loan decisions of banks in an emerging market.

RETRACTED ARTICLE: Loan repayment performance and its determinants: evidence from micro and small enterprises operating in Dire-Dawa, Ethiopia

Microfinance Institutions (MFIs) reach a large number of poor people who are not served by formal financial institutions and have been a prime element in the economic growth of countries like Ethiopia. To operate successfully MFIs have to make sure that the loan disbursed has to be repaid to have a sustainable and viable financial operation and contribute their own its share in reducing unemployment and poverty reduction. In light of this, this research study was conducted to investigate the factors affecting loan repayment performance and factors affecting it in Micro and Small Enterprises (MSEs) financed by Microfinance Institutions by taking lender characteristics. Primary data was collected using questionnaires and interviews. A total of 175 Micro and Small Enterprises were selected using purposive sampling. Secondary data was acquired from annual reports and financial statements of Microfinance institutions and other institutions. Descriptive analysis as well as econometric analysis was used to analyze the effect of the literature-driven variables on the loan repayment performance of borrowers. The binary logistic regression result revealed that loan repayment period, grace period, and timeliness of loan release have a statistically significant effect on the loan repayment performances of borrowers. Loan size has a statistically insignificant effect on the loan repayment performance of borrowers.

Syrian SMEs in Times of COVID-19 Pandemic: Challenges, Adaptation, and Policy Measures

SMEs constitute the backbone of the Syrian economy and have suffered manifold challenges due to the continuous Syrian war. COVID-19 added further pressures on Syrian SMEs and forced them to take certain adaptation strategies to survive. This paper aims to investigate the main challenges that face Syrian SMEs during the pandemic and illustrate how they respond to adversities that emerged from governmental intervention to control the spread of the virus. It also discusses the measures initiated by the government to support SMEs during the pandemic. Through interviewing persons from the Syrian SMEs’ ecosystem, we find that high interest rates on SMEs’ loans decline on demand as well as high inflation represent the main challenges. SMEs respond to these challenges by marketing products online, stock procurement, and strengthening connections with stakeholders. We recommend the Syrian authorities reduce lending rates and increase loan sizes available to SMEs to help them overcome the pandemic adversities. Innovative sources of funding, such as venture capital and equity partnerships, could reduce the funding costs of SMEs. Moreover, SMEs will immensely benefit from training in digital tools to enhance their expansion and survival opportunities. Furthermore, bazaars should be organized during the year to give SMEs the opportunity to gain continuous access to markets. In addition, incubation services should be revised, particularly to SMEs with great potential to grow, to create the suitable environment for them to scale and flourish.

Farm Household Access to Agricultural Credit in Sagnarigu Municipal of Northern Ghana: Application of Cragg’s Double Hurdle Model

Agricultural credit plays a crucial role in enabling smallholder farmers to increase farm output and reduce rural poverty. Despite this, access to credit remains a challenge to many smallholders. This study thus used cross-sectional data and Cragg’s double-hurdle model to assess the factors affecting farm credit access and the determinants of loan size in the Sagnarigu municipal of northern Ghana. The study found that institutional factors played a significant role in the amounts borrowed. Furthermore, household characteristics had little influence on credit access, whereas farm characteristics played a major role in credit accessibility and loan size. These factors should be considered in designing credit policies for smallholder farmers.

The interest rate pass-through by loan size: Evidence for Mexico, 2011-2019

This paper measures the impact of changes in the central bank's reference rate on bank lending rates at both the aggregate level and by loan size. Our data come from the payroll and personal loan markets in Mexico for the period comprising 2011 to 2019. We use an autoregressive model with distributed lags, which allows for the possibility of asymmetric effects. The results show, among other findings, that the pass-through is small; it is not necessarily positive; asymmetric behaviour cannot be ruled out; and, its value depends on the loan size. These results imply that the effectiveness of monetary policy is weakened, in addition to the fact that the reaction of banks to changes in the target interest rate may have distributional implications. The originality of the paper lies in the grouping of interest rates by loan size and the use of a methodology that allows us to assess the existence of asymmetries. Its main shortcoming is the lack of data regarding the characteristics of the borrowers.

Cooling the mortgage loan market: The effect of borrower-based limits on new mortgage lending

This paper studies the effects of regulatory measures concerning maximum loan-to-value (LTV), debt-to-income (DTI), and debt service-to-income ratios (DSTI) on new loans secured by residential property. It uses loan-level regulatory survey data on about 82,000 newly granted residential mortgage loans in Czechia from 2016 to 2019 to estimate the average effects of regulatory measures and their heterogeneous effects depending on borrower, loan, bank, and regional characteristics. We find that the LTV limits decreased the mortgage loan size only slightly, while the value of collateral securing the loans increased. Only the additional DTI and DSTI limits helped reduce the average loan size significantly and prompted more risk-sensitive pricing that heighten the average lending rate. The mortgage market response to the limits appears heterogeneous in loan size rather than pricing or collateralization. The loan size reduction varied with the borrower’s income, age, and location. High-income, high-repayment, and 25 to 35 years old borrowers reduced their contracted loan size more. Borrowers located in regions with higher GDP per capita and lower unemployment rates reduced the contracted loan size more. Longer-maturity loans showed a greater drop in the contracted loan size.

An assessment of factors determining loan repayment performance of SMEs in Gwarzo Local Government – a review

The main objective of this study is to assess the factors that determines loan repayment performance of Small and Medium Enterprises (SMEs) in Gwarzo L.G.A of Kano state-Nigeria as SMEs are important sector in all economies, be it developed or developing, therefore, their performances affects economic development of any nation. However, there are so many credit facilities for SMEs in Nigeria which are meant to promote their activities. Most of these credits are granted without collateral, as such so many SMEs find it difficult to repay the loan on stipulated time which has effect on repayment performance. This study therefore, reviewed existing literature on the relationship between loan sizes, loan tenure, and interest rate, borrowers` attitude of money and loan repayment among SMEs in Nigeria. Based on the literature reviewed the study concludes that loan size, loan tenure, interest rate and borrower`s attitude of money have significant relationship with loan repayment among SMEs in Gwarzo LGA.. The study recommends that financial institutions should consider, loan size, loan tenure, Interest rate and borrower`s attitudes when giving loan to SMEs.

A decomposition analysis of microcredit welfare gaps in Ghana. A gender analysis

The literature is replete with studies suggesting that the microcredit market is expanding with varying degrees of impact on male and female clients. The paper investigates the extent to which differences in loan use behaviour and loan amount received contribute to differences in microcredit welfare impact among male and female clients. Using the sixth (2012/2013) and seventh (2016/2017) rounds of the Ghana Living Standards Survey, and applying the Oaxaca-Blinder decomposition technique with the two-staged recentred influence functions, we find that the welfare disparity in microcredit delivery is due to a lower inequality and poverty rate among female clients relative to their male counterparts. Additionally, we find that gender welfare gaps in microcredit delivery are powered extensively by differences in the size of loans received and the loan use behaviour of clients. The findings lend support for policy reassessment on gender in the provision of credit; to improve portfolio quality and reinforce the returns of microcredit access among clients.

THE NEW LAW ON MICRO BANKS AND WHAT IT WILL CHANGE IN THE FINANCIAL MARKET OF GEORGIA

Microfinance is the provision of financial services to low-income groups. By classical definition it contributes to the improvement of the socio-economic condition as well as financial self-sufficiency of the low-income costumer and improves their living standards. Today, microfinance institutions around the world serve up to 156 million borrowers and manage a loan portfolio of USD 187 billion (Impact Finance Barometer, 2022: 3). Formation of Georgian microfinance market began in the 1990s and was developed mainly with the same scenario as in Balkans, Eastern Europe and Central Asia. During the first 10 years after adoption of the new Law on Microfinance Organizations and commercialization of the industry, a rapid growth and fast development of the sector was recorded (2006-2016), which has been then changed by a negative trend and market decline. The main reasons of the crisis are: tighter regulation, market saturation, growing competition from commercial banks, over-indebtedness, weak corporate governance, etc. In July 2022, the draft law on the activities of micro banks was registered in the Parliament of Georgia, according to which a new financial institution focused on lending to entrepreneurial and agricultural activities - a micro bank - will enter the market from 2023. The draft law was prepared based on the recommendation of the International Monetary Fund, which advised the National Bank to introduce a micro bank as a new institutional form (International Monetary Fund, 2020: 19). As a result of the law, 4 types of financial institutions will be presented in the financial market of Georgia since 2023: commercial banks, micro banks, microfinance organizations and loan issuing entities. The new regulatory framework should give microbanks the following advantages over the current status of MFIs: The maximum loan amount per borrower will be increased from GEL 100,000 to GEL 1 million, which allows microbanks to actively enter the SME lending segment, retain good borrowers, grow faster faster in the market and compete with banks. Having the right to mobilize the deposits, microbanks will be able to better diversify their funding sources, reduce the cost of local currency borrowing (based on savings in hedging) and, accordingly, reduce the interest rate on loans for thier clients, which will also increase their competitiveness with banks. By offering bank account services, microbanks will be able to provide customers with an almost full range of banking services. After legally differenciating from “consumption” and “pawnshop” type of financial institutions, microbanks will be able to attract more investments from responsible and reputable international financial institutions. At the same time, the new draft law contains certain potential risks that need to be properly assessed and analyzed: The increase of loan size limit from 100,000 to 1 million GEL is a good for portfolio growth. However, most companies lack the experience and qualification to properly manage risks of such large loans. Past experience also confirms that the worst portfolio quality and problem loans MFIs have in large loans (over GEL 10,000). Administration of the article, according to which at least 70% of the loans of a microbank must be disbursed for business purposes, seems very difficult. As of today practically no MFIs can meet this criteria. Adding the new products (deposits, account management) requires a high-quality core banking systems and automation of many processes. Consequently, microbanks will have to mobilize additional financial and human resources to build this infrastructure, which may take several years and entail significant costs. In conclusion, it can be said that the draft law is likely to have a positive impact on the financial sector. Competition in the financial sector will increase, which will lead to the provision of better quality and diverse financial services to customers.

The Relationship Between Microfinance Mission Drift and Financial Returns to Stakeholders

Some microfinance institutions (MFIs) can drift from their social mission, generating well-studied effects for their borrowers. We focus on the lesser-known effect of mission drift on the financial return to other stakeholders (employees, government, micro-savers, and banking creditors). Using a sample of 534 MFIs, we calculated the economic value distributed by the MFI to these stakeholders by considering salaries, taxes, and interest paid. We found a negative relationship between average loan size and return to employees (RTE), government, and banking creditors, and a positive relationship between women borrowers and RTE and government. This is explained by the fact that mission-focused MFIs are usually small, labor-intensive institutions with a stable business model. We found a positive relationship between average loan size and return to micro-savers, and a negative relationship between women borrowers and return to micro-savers. The reason is that many mission-focused MFIs do not offer micro-savings, undermining financial inclusion.

Uptake and Utilisation of the Constituency Women Enterprise Scheme (C-WES) Fund among Women Beneficiaries in Nyamira County- Kenya

Globally, women's economic empowerment has been identified as a prerequisite to enhancing their economic development participation. It accelerates economic development and improves women's economic independence by creating job opportunities. Additionally, their social, educational and health standards both at the individual and family level improve. The government of Kenya introduced the women Enterprise Fund to empower women economically through the provision of credit and business support services. However, Women Enterprise Fund has experienced challenges in its extension of services. One of the major challenges is the high default rate among the fund beneficiaries accessing loans through Constituency Women Enterprise Scheme. The high default rate has impacted heavily on the sustainability of the fund. Therefore, this study sought to assess determinants of uptake and utilisation of loan Constituency Women Enterprise Scheme fund among women in Nyamira County. The objectives of the study were: To establish factors that determine the uptake of C-WES funds, examine determinants in the utilisation of C-WES funds, examine challenges related to the uptake and utilisation of C-WES funds and suggest gender-responsive strategies that would ensure effective utilisation of C-WES and improved repayment performance. The liberal feminist and joint liability theories guided the study. Naisurma's (2000) model was used to determine a sample size of 95 respondents who were further selected by systematic random sampling. Further, data was collected using questionnaires and interview schedules; and was analysed using descriptive statistics, including frequencies and percentages, and presented in the form of graphs, charts, and tables. Quantitative data was analysed using Statistical Package for Social Sciences (SPSS) (Version 17.0). Findings from the study revealed that women were still interested in group loans. However, respondents identified loan size, lack of supervision, group conflicts as contributing factors to the uptake and utilisation of loan repayment. Loan diversion was also established among borrowers.