Microfinance Lending Research Articles

INFLUENCE OF MICROFINANCE LENDING ON THE PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN GATANGA SUB COUNTY OF MURANG’ACOUNTY IN KENYA

Purpose: The purpose of the study was to assess the influence of microfinance lending on the performance of small and medium enterprises in Kenya.Methodology: The study adopted descriptive research design. The target population was 210 Small and Medium Enterprises operating in Gatanga Sub County of Murang’a County in Kenya. A stratified random sampling technique was used in this study. Data was collected using structured questionnaires. The sample population for this study was 94 Small and Medium Enterprises operating in Gatanga Sub County. Primary data was collected through a questionnaire. Descriptive and inferential analysis was conducted to analyze the data. The data was presented using tables, graphs and charts. The study used multiple regression analysis model to establish the relationship between the variables.Results: The regression results showed that there is a positive and significant relationship between access to credit facilities and performance of SMEs as supported by a p value of 0.000 and a beta coefficient of 1.088. Results further showed that there is a positive and significant relationship between credit lending policy and performance of SMEs as supported by a p value of 0.001 and a beta coefficient of .072. In addition, results showed that there is a negative and significant relationship between interest rates and performance of SMEs as supported by a p value of 0.000 and a beta coefficient of -0.351. Lastly, results showed that there is a negative and significant relationship between collateral security and performance of SMEs as supported by a p value of 0.000 and a beta coefficient of -0.588.Unique contribution to theory, practice and policy: The findings of this study will be useful source of reference to researchers and scholars in their research work. Further, the government of Kenya will be able to appreciate which areas of microfinance lending need improvement and, thus formulate appropriate credit policies. In addition, MFIs will be able to train their credit officers on what kind of investment opportunities are viable for Small and Medium Enterprises. Similarly, the study will facilitate the availability of information for SMES businesses on influence of microfinance lending on the performance of their businesses and how best they can get access to microfinance as well as protect them from failure.

Forewarned is forearmed – repayment delays in microfinance relationships

PurposeIn order to improve the assessment of current lending policies for a microfinance institution (MFI) in Azerbaijan, the purpose of this paper is to analyse how lending conditions are adjusted based on knowledge gains during the loan relationship, with particular attention to delays in previous loans. Moreover, the paper examines what a lender can pre-determine from its own collected repayment records of clients. In addition, the repayment performances and lending policies between agricultural and non-agricultural clients are differentiated.Design/methodology/approachThe analyses are based on a rich data set of an Azerbaijani MFI. For determining the influence of previous delays on the volume rationing in the following loan, the authors apply a generalized linear model. Subsequently, the probability of recidivism is analysed by means of a logit model.FindingsThe results confirm a positive relationship between delays in previous loans and repayment problems in present loans, which is increased by the severity of the previous delay. With respect to consequences, it is shown that the borrower with previous delays faces an increase in loan volume rationing in the subsequent loan. Moreover, the authors find that the consequences of previous delays do not differ significantly between farmers and other clients.Originality/valueUntil now, the consequences of repayment delinquencies in microfinance lending relationships have hardly been investigated. This study enhances the understanding of lending policies in microfinance by focussing on relationship aspects and by simultaneously differentiating between farming and non-farming clients.

MITIGATING LOAN REPAYMENT TROUBLES DURING MICROFINANCE EXPANSION: EVIDENCE FROM A LARGE PANEL

(ProQuest: ... denotes formulae omitted.)1.INTRODUCTIONOne of the core objectives of microfinance institutions (MFIs) is the provision of banking/financial services to non-traditional customers known as poor and low-income households or businesses. A significant challenge facing these institutions is the struggle for financial self-sufficiency. This means controlling most of the risks in the loan portfolio through adequate loan collection and timely loan repayments. Doing so, provides for further extension of funds to other borrowers, resulting in further outreach and development (Crabb and Keller, 2006).Examining this challenge in the presence of uncontrolled is of importance, since fast microfinance could pose substantial strain on MFIs' mission, making it harder for them to operate sustainably in such an unconventional market structure. In addition, the 2004-2008 surge in microfinance provides a great opportunity to test this hypothesis.There is a paucity of empirical work on the effects of the unprecedented rapid microfinance expansion that occurred between 2004 and 2008. Practitioners have speculated that this phase in microfinance activities has led to increased loan delinquency. According to Gonzalez (2009), the increase in the number of borrowers during the expansion averaged 21 percent per year while loan portfolio jumped by a staggering 34 percent per year on average.Chen et al. (2010) and Stephens (2009) examine some of the emerging economies qualified as high growth markets and show that in 2008, these markets1 experienced devastating loan delinquency rates. These studies feed into the narrative that aggressive in microfinance lending may pose higher credit risk to MFIs as loan recovery efforts become more challenging. Chen et al. (2010) identified key contributing factors to poor loan repayment rates among which microfinance is mentioned. However, they present no empirical evidence.In this paper, we use a new and improved proprietary comprehensive dataset that includes a large cross-section of MFIs to estimate the effect of rapid microfinance expansion on loan delinquency. The use of such a comprehensive data mitigates that kind of measurement error that plague many microfinance studies (missing data) and allows us to estimate linear panel models. Given that the effects of microfinance expansion may not be visible during the boom years (2004-2008), we extend our dataset from 2003 to 20132 to include post-boom years. For proper identification of the effect of microfinance expansion on loan delinquency, we control for aspects of microfinance (micro) and beyond-microfinance (macro) design.2.DETERMINANTS OF LOAN REPAYMENTLoan repayment is the most revealing of the five3 performance areas of a MFI (Rosenberg, 2009). So, the ability to collect loans is critical to the success of MFIs. We use the loan loss rate to proxy loan repayment.... (1)The loss loan rate measures how well a MFI collects its loans and our presumption is that higher values of loan loss rate are associated with lower repayment rates.To measure the impact of microfinance on loan delinquency, it is important to control for factors that may explain changes in loan repayment. The choice of control variables is motivated by the literature. We hypothesize that loan repayment is influenced by the of lending,4 the percentage of female borrowers,5 other (micro) institutional factors6 such the personnel allocation ratio (percent of staff devoted to credit control), the quality of prudential regulation, the quality of technical assistance, operational self-sufficiency, financial intermediation and credit risk (portfolio at risk more than 30 days) and macroeconomic variables7 (GNI per capita rate and inflation) that may affect the ability of the MFI to recover loans.Following the Microfinance Information Exchange (MIX) Market definition, operational self-sufficiency is calculated as follows:. …

The Scorpion Who Stings the Dog Who Bites: Women Role and Gender Discrimination in Microfinance

Allowing women to access and participate in the economics of life is no longer a “women’s issue”. Gender equality has become a strategic priority for firms to improve their economic and/or social performance. Thus, questioning whether gender discrimination is an issue even in firms directly engaged with the empowerment of women, also becomes an urgency. Commitment is not enough and gender concerns require a strategic approach. In this paper, we investigate gender discrimination in microfinance lending according to the roles females hold in MFIs. Using a panel of 205 Microfinance Institutions (MFIs) in 54 countries, we find that women in MFIs, differently from men, do not discriminate in loan size against women borrowers by gender. Moreover, women hierarchical positions matter in moderating this relationship. Females in operating roles are more effective in reducing gender discrimination than women in leading positions. Whilst we focus on discrimination outside the MFIs, we find results consistent with the fact that gender equality in microfinance can be enhanced by gender equality advocate inside the organizations. Research on women’s empowerment should not only stress the presence of women in the organizations but also their role in the firm and the gender composition of working units. Practitioners pursuing gender equality need to reassess the role of women in the MFIs. Appointing women to powerful positions could be a straightforward solution but ineffective.

Assessing the performance of microfinance lending process using AHP-fuzzy comprehensive evaluation method

Many studies focus on microfinance institutions (MFIs) profitability, client retention, and default rate. Yet, they do not pay much attention to the way in which microfinance (MF) can improve the living conditions of the poor and satisfy their needs. This article presents a new way to assess the performance of MF lending process based on analytic hierarchy process (AHP)-fuzzy comprehensive evaluation method. The aim is to suggest some solutions to improve the performance of processes that create and support MF products and services. Not only should this study contribute to the research literature but it can also help the MFIs to control the risk derived from their operations and increase client satisfaction. Thus, MFIs can enhance their performance and their role in reducing poverty.

Microfinance banks and small and medium sized enterprises access to finance: the Nigerian experience

The paper explored the extent to which current microfinance lending impacts on indigenous SME access to finance and how the intermediation services of the microfinance banks (MFBs) contributed to or otherwise to the development of SMEs. A total of 800 such indigenous SMEs were identified, however, data were obtained from 300 of the identified indigenous SMEs from a questionnaire survey in four states (provinces) within the country that make up the Niger Delta region. The result shows positive contribution of microfinance lending to the development of such enterprises. However, it appears that a number of factors including cumbersome process, poorly packaged business plans and perceived high cost of credit still limit the access of indigenous SMEs to credit. Keywords: microfinance banks, SMEs, entrepreneurship, financial services. JEL Classification: G21, L26, M13

Micro Finance Model of Agriculture in Supporting Economic Growth in Aceh

The general objective of this study was to analyze the model of micro-financing of agriculture in order to develop the rural economy and support economic growth in Aceh. The specific purpose of this study is to identify and analyze the social and economic profile of households recipient farmer agricultural credit and micro enterprises in Aceh, to evaluate the performance of credit financing to the Government Bank Sector Micro Farms, identify prospects, challenges and constraints of microfinance institutions in microfinance lending farming in Aceh and analyze the sustainability of microfinance models of agriculture in Aceh, and formulate policies appropriate agricultural micro-financing in supporting economic growth in Aceh. Financing system analysis conducted qualitative description, including ease of access to credit, credit suitability, filing and retrieval mechanism of credit, smoothness, obstacles and constraints in lending, loan interest rate and loan repayment system including congestion anticipation loans. Determination of the effectiveness of microcredit agriculture Scoring is done via method. The effectiveness of agricultural micro-credit schemes assessed through monitoring and evaluation of the performance of some aspects of inputs, processes, outputs, outcomes, benefits and impact. Analysis of the sustainability of credit schemes analyzed based on financial viability, institutional viability (managerial), and the viability of the participants, Results of studies in which micro-financing system for farming and still there has been no financial institution that helps, financing done still in the form of government assistance to the farmers and there is no oversight of government ranging from distribution, so that harvesting and collection processes, outputs, outcomes, benefits and can not feel the impact in the community

Are African female farmers disadvantaged on the microfinance lending market?

Purpose The purpose of this paper is to examine whether social and/or cultural obstacles faced by African female farmers diminish their accessibility to lending opportunities provided by a commercial microfinance institution; and affect their repayment performance. Design/methodology/approach The underlying data set is comprised of information regarding 9,710 farmers from Madagascar and was provided by the AccèsBanque Madagascar. Logit and Tobit models are applied to determine gender effects on loan accessibility and repayment performance, respectively. Findings Even though female farmers are associated with a lower repayment performance, they have a higher rate of loan application approval compared to male farmers. Research limitations/implications The results are limited to Madagascar and other African countries with similar socio-economic conditions. Social implications Commercial microfinance institutions still provide access to credit for disadvantaged groups, such as female farmers. Originality/value To the best of the authors’ knowledge, this is the first study investigating gender-specific credit access and repayment performance of rural African farmers using a data set from a commercial microfinance institution without a social mission for females.

Environmental Shocks and Sustainability in Microfinance: Evidence from the Great Famine of Ireland

I study the effects of a major environmental shock on microfinance lending by analyzing the Irish Loan Funds during the Great Famine of Ireland. I find that funds in districts worse affected by bli...

Not All Inequality Is Equal: Deconstructing the Societal Logic of Patriarchy to Understand Microfinance Lending to Women

Many social problems reflect sets of beliefs and practices—or “institutional logics”—that operate at the societal level and rationalize the marginalization of certain categories of people. Studies ...

MFIs Lending and Poverty Reduction

<em>The paper aims to study the impact of the Microfinance lending in India as a powerful instrument for poverty Reduction. </em><em> Social businesses like microfinance, due to their sensitive client base, need to walk a fine line to balance their commercial interests with the social and moral expectations of a wide variety of stakeholders. This study attempted to investigate the effects of MFIs on poverty reduction. It intended to cover credit facilities provided by the MFI and clients perception on income improvement and/or reduced poverty levels. The study found that there is an impact of Micro Finance Institutions (MFIs) lending on income levels of beneficiaries and poverty reduction.</em>

Информационная асимметрия на финансовом рынке и защита прав потребителей кредитных услуг в Российской Федерации

The article is based on the results of the monitoring of financial services consumers’ rights protection, held within the framework of the joint project «Financial Education and Financial Literacy»оf the Russian Мinistry of Finance and the World Bank. The results show the influence of information asymmetry on consumers’ and financial organizations’ behavior in the retail credit market (broken into such segments as consumer credits, mortgages, car credits, microfinance lending). The paper identifies the most serious violations of consumers’ rights provoked by the asymmetry and offers recommendations for diminishing the information asymmetry.

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

Optimal (partial) group liability in microfinance lending

This paper develops a model of group borrowing that incorporates partial group liability, where borrowers are penalized if their group members default but are not held responsible for the entirety of the failed loan. The model illustrates a trade-off of group liability lending: while higher levels of group liability increase within group risk-sharing, if liability is too high, borrowers strategically default. The model predicts the existence of an optimal partial liability that maximizes transfers between group members while avoiding strategic default. Consistent with this prediction, loan officers from a large microfinance institution in southern Mexico who rarely allow one group member to repay while the other defaults achieve substantially lower default rates than loan officers for whom the practice is commonplace or for those for whom it has never occurred. Structural estimation using repayment data suggests that while a partial liability below full liability may reduce default rates, the incidence of strategic default is rare.

Beauty, weight, and skin color in charitable giving

This paper examines bias in online charitable microfinance lending. We find that charitable lenders on a large peer-to-peer online microfinance website appear to favor more attractive, lighter-skinned, and less obese borrowers. Borrowers who appear more needy, honest and creditworthy also receive funding more quickly. These effects are quantitatively significant: Borrowers with beauty one standard deviation above average are treated as though they are requesting approximately 11% less money. Statistical discrimination does not appear to explain our findings, as these borrower attributes are uncorrelated with loan performance or borrower enterprise performance. The evidence suggests implicit bias could explain our findings: more experienced lenders, who may rely less on implicit attitudes, appear to exhibit less bias than inexperienced lenders.

The Effect of Virtuous and Entrepreneurial Orientations on Microfinance Lending and Repayment: A Signaling Theory Perspective

The availability of capital for microenterprises has grown rapidly due to microfinancing platforms such as Kiva. The investment decisions of microlenders are challenged due to the limited information about the microenterprises’ characteristics and behavioral intentions. Extending signaling theory, we suggest that microenterprises’ narratives on microfinancing platforms are an important means to signal valuable characteristics and behavioral intentions to prospective lenders. Results indicate that microenterprises, which signal autonomy, competitive aggressiveness, and risk–taking, are more likely to receive funding, and to receive it more quickly. Microenterprises that signal conscientiousness, courage, empathy, and warmth are less likely to get funded. Rhetorical signaling proactiveness, conscientiousness, courage, warmth, or zeal is negatively associated with loan repayment.

Measuring Access of Microfinance on Poverty in India: Towards a Comprehensive Index

The outreach of micro-finance programme is considered to be a means enhance the economic well-being among the member means to enhance households through poverty alleviation. A wide cross-country variation in the outreach of micro-finance programme to the poor households is observed in the world. Despite the significant growth of micro-finance institutions and its active borrowers, the penetration of micro-finance lending services to the poor households in India is observed to be limited. In addition, there is a wide inter-state disparity in the achievement of micro-finance outreach in India especially among the poor households. A composite index has been constructed using the penetration, availability and usage indicators of micro-finance outreach to examine the interstate variations in the level of its achievement. Subsequently, attempt has been made to analyse the role of micro-finance in alleviating poverty across the states of India. The result shows that out of 27 states and Union Territories, only in seven states (Kerala, Andhra Pradesh, Tamil Nadu, Goa, Himachal Pradesh, Tripura, and Karnataka) outreach of micro-finance programme has made a significant impact on the reduction of poverty.

New approaches to MSME lending: challenging traditional credit assessment models in electronic cash-flow environments

Micro, small, and medium-sized enterprises (MSMEs) play a critical role in economic growth and wage employment in both developed and developing economies, yet significant obstacles remain in unlocking the potential of these businesses - especially as regards access to credit. A confluence of three new market trends is reshaping longstanding efforts to overcome this dilemma: 1) increasing access to real-time, 'electronically verifiable' cash-flows; 2) the mining of cash-flow data to reveal insights into repayment likelihood beyond that discoverable in traditional credit analysis; and 3) the adoption of financial technology and certain principles of microfinance lending - most specifically uncollateralized lending and frequent incremental repayment - to meet the funding needs of MSMEs. This paper explores the interrelationship of these trends and contends that, together, they enable suitably empowered financial institutions to originate and manage short-term, unsecured loans to formal MSMEs on a profitable and scalable basis.

Cost Components of Interest Rate Charged By Indian Self Help Groups Financed By Not-For Profit Microfinance Institutions

Although, interest rate charged by microfinance stimulate of lot of ethical debate. Very few studies in microfinance detail the cost components of interest rates paid by the borrowers. Setting the optimal interest rate with a dual goal of financial sustainability and fighting against poverty is a complex task for microfinance lending. In this backdrop, this paper examines the various cost components of interest rate changed by Indian Self-Help Groups (SHGs) that are financed by not-for profit Microfinance Institutions (MFIs). The study uses neo-classical framework for the analysis of interest rate determinants like cost of funds, administrative (operating) cost, opportunity cost, travel costs and some margin to sustain the business. The data have come from a survey of 106 women SHGs in ten villages in the state of Karnataka, India. The study finds that the cost of fund and other costs associated in microfinance significantly influence the rate of interest and the SHGs need to reduce efficiently other costs associated with writing and maintaining the accounts, auditing, and hospitality offered, through innovative cost management methods of lending. As a result, there would be a welfare gain for the borrowers through reduced interest rate on loans.

The institutional context of poverty: State fragility as a predictor of cross-national variation in commercial microfinance lending

We examine cross-national variation in the global growth of commercial microfinance from 1998 to 2009 as a natural experiment to analyze the role of national institutions in shaping the ability of commercial enterprises to reach the global poor. Our results demonstrate that a country's level of state fragility represents an important institutional context of poverty that explains significant cross-national variation in the commercial microfinance industry's ability to grow its client base, control costs, and attract commercial capital. Moreover, we find that commercial microfinance lenders have experienced greater difficulty than nonprofit lenders in growing their client base in more fragile state settings. Our results support the proposition that the state shapes both institutional hazards and opportunities for business-led efforts to combat global poverty.