Microfinance Lending Research Articles

Examining Microfinance Loan Repayment Challenges and Procedures by Small Business Owners: The Case of Vikenge Village, Morogoro, Tanzania

The research surveys the factors affecting the ability of small business owners in Vikenge village to refund microloans. This study uses institutional theory framework to investigates the constraints encountered by these firms, their means for handling these constraints, and offer hints for improvement. Applying a qualitative research design, semi-structured interviews were performed with 13 small business proprietors. Participants were purposively selected due to their experience in microfinance lending and efficient reimbursement. Through thematic analysis, substantial issues concerning repayment challenges, techniques, and recommendations for enhancement were proven. The survey reveals a variety of obstacles that influence the repayment of loans, for instance; unexpected events, personal and familial matters, fluctuations in the economy, seasonal fluctuations in business, and complications with cash flow. Methodologies to repayment include strategies like saving money daily, options for flexible repayment, clear communication, and seeking outside financial assistance. Survey respondents also offered supportive recommendations, such as using loans for their intended purposes, decreasing interest rates, allowing more flexibility in repayment schedules, providing enhanced customer education and support, ensuring loan amounts are appropriate, and improving monitoring and collection procedures. This research survey enhances value to the current body of knowledge by delivering detailed analysis on the repayment of microfinance loans in small businesses in Vikenge village. The results proposed practical recommendations for microfinance institutions to acquire tailored repayment strategies that meet the varied requirements of borrowers, eventually leading to improved financial accessibility and long-term viability.

Microfinance Services and Household’s Income among Saving and Internal Lending Community Groups in Evurore Ward, Embu County, Kenya

The research established loans, savings and training services effect on the income of household’s income among saving and internal lending community groups in Evurore Ward of Embu County, Kenya. Greeman Bank model, Saving-Asset Accumulation model and Village Saving Model served as theoretical base of the study. Descriptive design was implemented following a population of 562 SILC practicing group members in Evurore Ward where proportionate sampling technique was applied to arrive at 291 respondents. Primary data was sourced employing the utilization of structured questionnaire. The outcome unveiled a significant positive effect of microfinance loans on household’s income; the effect of microfinance savings on household’s income among SILC groups was not statistically significant but positive; microfinance training had a significant positive effect on household’s income among SILC groups in Evurore Ward, Embu County, Kenya. The survey recommends that to further enhance the income-generating potential of SILC groups, it is necessary to promote increased access to microfinance loans. This can be achieved by collaborating with microfinance institutions, NGOs, and government agencies to expand the availability of microfinance loan programs tailored to the needs of SILC groups in the area. Keywords: Microfinance Services, Microfinance Lending, Microfinance Training, Microfinance Savings, Household Income

Impact of Microfinance Institutions Lending on SMEs Growth in Zimbabwe

This study investigated on the impact of microfinance lending on Small to Medium enterprises (SMEs) growth. This study adopted pragmatism philosophy wherein both positivism and interpretivism approaches were deployed. This study also adopted descriptive and explanatory research designs; the explanatory design for quantitative research and the descriptive survey for qualitative research. Proportionate stratified random sampling was used to select respondents that participated in questionnaires and judgemental sampling to select respondents who participated in interviews. Data was collected through the use of questionnaires with closed ended questions and interview guide instruments. Data was analyzed using Statistical Package for Social Sciences (SPSS), Thematic Approach, Microsoft Excel, and Microsoft Word packages. The study found that MFIs sell financial and non-financial products to clients. MFIs provide basic business skills, help with capital investment decisions, general business management and risk management. This finding extends the current body of knowledge on microfinance institutions lending impacts on SME growth. The study recommends that leadership strategy is one of the important strategies that can be embraced by MFIs to enable them survive competition in the market. MFIs need to increase flexibility, use holistic and innovative financing, employ research, take advantage of technology and make lending personal to SMEs. Because the transactions are frequently small and the clients are mostly from difficult-to-reach locations, most formal financial institutions regard the poor as high risk and high cost. Microfinance institutions must break these barriers. This allows low-income families (SMEs) to stabilize their income flows and save for future needs. MFIs need to keep on providing their services to SMEs. MFIs also need to keep providing business training to equip SMEs with requisite skills in savings mobilization and micro enterprise investment options. Policymakers and other social partners must develop and implement strategies to boost SME growth in their respective countries. To build a knowledge base for SME growth, authorities at the local, national, and regional levels must conduct evidence-based analysis to feed social dialogue and policymaking processes.

How do loan officer-borrower gender-driven behavioural differences impact on the microfinance lending market?

This paper analyses the impact of the gender of the loan officer-borrower pair on the loan-size, credit availability and time spent in managing the credit application. By using 3,020 lending transactions from Ecuador during 2016–2019, we document that the loan officer-borrower pair gender drives differences in the microcredit portfolio management. We find that female loan officers grant smaller microcredits to both male and female borrowers. However, the loan-size increases when matching the loan officer-borrower gender. We also demonstrate that female loan officers have greater loan approval rates, mainly in the segment of higher loan-sizes granted to male clients. Finally, our results show that the microcredits that have the fastest evaluation process are those that have a lower loan-size and are granted by female loan officers to female borrowers. Our findings have practical implications for the analysis of the credit availability for entrepreneurs as well as the loan portfolio management.

Micro Finance Institution Services and Performance of Restaurants in Mombasa County, Kenya

The expansion of the economy depends on the availability of financial services, notably credit and savings options. As a result, Kenya's economy has not grown and developed as expected as a result of MSMEs. Medium and Small entities encounter several weaknesses that hinder their potential usefulness towards long-term sustainability of the economy. The lack of credit services is one of these concerns. The efforts of microfinance institutions to make their services available to small and medium-sized businesses that have not profited from the traditional formal banking system have been recognized as a result of the growth and expansion of SMEs. Because of this, the researcher evaluates how microfinance services affect the performance of restaurants in Mombasa's core business district. Researchers hope to learn how microfinance training affects the performance of Mombasa CBD restaurants; how the regulatory framework for microfinance affects Mombasa CBD restaurants; whether access to credit affects Mombasa CBD restaurant performance; and the impact of microfinance credit cost on Mombasa CBD restaurant performance. The study was based on Balance Scorecard theory, Resource-based theory, Pecking order theory, Credit Access theory and Management theory. A descriptive survey design was used in this investigation for restaurants over seven years and above. 114 people who worked at the selected restaurants in Mombasa's core business centre were selected whereby, 57 of whom were managers and 57 were waiters. The researchers used the census approach, in which all employees were included. The study data was through questionnaires. Statistical Package for Social Science (SPSS) Version 25 for Windows was used for data analysis. In order to get the most accurate results, we used a variety of statistical methods such as means, frequency tables, percentages, standard deviations correlation and regression. The study found that training and microfinance regulatory framework indicated an insignificant relationship with performance of restaurants in Mombasa County however access to microfinance credit and microfinance credit cost indicated a positive significant relationship with performance by SMEs in Mombasa County. The study concluded that Owners of businesses can benefit from training in the form of expanded professional networks, the transfer of technology, the formation of new businesses, and the acquisition of superior management practices. Business success and continued operation depend on the availability of debt financing. However, MFIs are hesitant to lend to SMEs because they are seen as higher risks and SMEs typically do not have collateral to back up their loans. The study also concludes that the amount of the loan is a crucial factor in microfinance lending since it affects the overall cost of financial intermediation. The study recommends that Microfinance institutions should continue training restaurant owners on financial management for the purposes of sustaining enterprises. This will create better understanding on how to manage their funds more efficiently and effectively. In order to make it easier MFIs to have favorable financial performance, the institutions ought to adopt methods that will make it easier for MFIs to have improved liquidity. This will allow the institutions to be more efficient in their financial operations. The study also recommends that microfinance institutions and policymakers should think about incorporating an affordable micro-insurance plan as part of the microfinance package for all its clients who seek for loans. Small and medium-sized enterprise management should be more proactive in approaching MFIs to analyze their business progress and share their current needs and concerns.

Experiences of people with physical disabilities when accessing microfinance services in Bangladesh: A qualitative study

This paper represents the experiences of people with physical disabilities in accessing microfinance lending. Microfinance emerged as a tool to eradicate poverty and empower poor people; however, accessing it is challenging for many people with physical disabilities. This qualitative study was conducted through semi-structured in-depth interviews with twenty people with physical disabilities in Bangladesh to explore their insights into the issues that they face in accessing microfinance. Data was collected from both urban and rural areas and both male and female participants. Underpinned by the social model of disability, this study finds that people with physical disabilities experience substantial exclusion, stigma and barriers in accessing microfinance. In many cases, despite the efforts of microfinance institutions, credit is unavailable to many people with physical disabilities, as they experience negative and unfriendly behaviour from microfinance staff and unaffordable credit conditions. Moreover, people with physical disabilities have fewer opportunities to access non-credit services, such as savings, insurance, training and complaints mechanisms. To address these challenges, microfinance institutions need to develop disability-friendly and robust institutional policy reforms. People with disabilities should be actively involved in the policy development process. This study will not only share the experiences of people with physical disabilities from a context in the Global South, but also provides insights which might be useful to understanding the challenges that other people with disabilities in different countries face in terms of financial inclusion.

Can microfinance lending crowd out informal lenders? Evidence from the Philippines

AbstractThis study examines whether microfinance lending increases or decreases the likelihood and amount of credit that households demand from informal lenders. Multivariate probit and seemingly unrelated regression models are applied using nationally representative data collected in the Philippines. The estimation results indicate that microfinance ‘crowds out’ informal lending from both moneylenders and relatives and friends. Moreover, households with microfinance loans are less likely to borrow from other formal financial institutions. These results highlight the importance of developing a well‐tailored microfinance scheme that reaches the entire population in order to achieve financial inclusion.

Microfinance in Russian Regions: Lending to Entrepreneurs in 2018

The purpose of the research is to assess the indicators describing the activities of microfinance lending systems for entrepreneurs in Russian regions. Our study uses official statistics on the quantity and total amount of microloans provided for entrepreneurs in all regions of Russia in 2018. The paper deals with the following relative indicators: the number of microfinance loans per 1000 entrepreneurs, the number of microloans per one region resident, the number of microloans per entrepreneur, and the average value of one microloan. Our study provides an assessment of these indicators for all regions of the country, determines their average values and intervals of change, typical for most regions and identifies regions with large and low values of these indicators. Methodology used in the paper and the developed tools can be used in further scientific works devoted to microfinance. The research results can be applied by state and regional bodies in the process of formation and implementation of measures that improve financing of the business sector. The developed models can be referred to when determining the needs for entrepreneurs' microfinance in regions where the entrepreneurial sector is not discussed. The data obtained can be used in the process of teaching bachelor and master students at universities.

Diffuse Drivers of Modern Slavery: From Microfinance to Unfree Labour in Cambodia

ABSTRACTOver the past two decades, the global issue of modern slavery has become increasingly prominent within development thinking and practice. Efforts to address it largely focus on criminal prosecutions of immediate ‘perpetrators’, for instance those who are direct employers or middlemen. This article adds to a growing call from critical scholars to look to the structural drivers of such highly exploitative labour relations. Drawing on an unfree labour approach that views debt bondage as embedded in and reproduced by capitalist accumulation, this analysis explores the diffuse drivers of unfree labour through the experiences of indebted farmers who have migrated from rural areas to work in and around Phnom Penh as debt‐bonded brick‐kiln labourers. The study demonstrates how debt discipline in the context of unregulated microfinance lending in rural Cambodia creates the conditions for unfree labour to emerge. Evidencing links between risky lending practices and unfree labour, the article strengthens calls to understand modern slavery as unfree labour and, in doing so, highlights the failures of the UN's Sustainable Development Goal 8 and other similar policies to make these crucial connections.

Microfinance and Green Energy Lending: First Worldwide Evidence

The increasing requirement for action on climate change in developing countries has led to the inclusion of environmental aspects in microfinance objectives, in addition to social and financial performance, and hence to the appearance of green microfinance. To date, financing for modern energy service has proven to be an attractive option to offset adverse climate change related effects for the poor. This article sheds some light on factors predicting clean energy finance involvement of MFIs. By using a worldwide survey among microfinance institutions on rural lending and IT solutions implemented by YAPU Solutions, this study investigates how institutional characteristics and economic growth relate to green energy micro-credit. The findings provide evidence of a significantly positive relationship between the maturity and business sustainability of an MFI and the likelihood of offering green energy loans. Moreover, MFIs managed by female managers and located in wealthy countries are less willing to commence the finance of green energy.

Are microfinance institutions resilient to economic slowdown? Evidence from their capital ratio adjustment over the business cycle

Prior studies using pre-crisis data concluded that microfinance institutions are resilient to economic crises. However, some recent studies indicate that the microfinance sector is becoming part of the global financial system and microfinance lending activities are now vulnerable to economic and financial crises. Capital being a key resource to support lending, this paper analyzes the cyclical behaviour of capital ratio using an international sample of microfinance institutions from 2001 to 2014. We uncover a negative relationship between their capital-to-assets ratios and business cycle indicators. This relationship mainly concerns regulated institutions, comprised mostly of profit-oriented MFIs, and is driven by both asset-side and capital level adjustments. We identify the lending channel (loan-to-assets ratio) as the main mechanism to explain these cyclical variations. Our findings are consistent with the “procyclicality” of capital regulation documented extensively in the banking literature. Hence, macro-prudential regulation for MFIs should target regulated and profit-oriented MFIs.

Discrimination against people with disabilities in accessing microfinance

The purpose of this paper is to explore the state of existing research on microfinance lending discrimination against people with disabilities. It argues that existing literature suggests people with disabilities face notable discrimination in accessing microfinance (Labie et al., 2015). The attitudes of employees within microfinance institutions (MFIs) are one of the principal sources of such discrimination, which has important implications for the lives of people with disabilities (Cramm & Finkenflugel, 2008; Mersland et al., 2009; Labie et al., 2015). Moreover, studies conducted by Beisland & Mersland (2012) and Nuwagaba et al. (2012) found that people with disabilities tend not to apply for microfinance due to the anticipation of such rejection. People with disabilities face both ‘taste-based discrimination’ (prejudice) and ‘statistical discrimination’ (when a decision-maker uses individuals’ observable characteristics as a substitute for unobservable ones). It is reasonable to assume that reducing discrimination in the microfinance market would greatly benefit existing and prospective entrepreneurs with disabilities. However, this requires targeted interventions aimed at inducing systematic institutional reforms, changing the mindsets of employees and people with disabilities, and integrating appropriate accommodations within microfinance operations. In order to implement these changes, I conclude that microfinance regulators must work to identify areas of discrimination that are not correctly covered by existing lending practices.

What Influences Microfinance Lending Interest Rates in Sub-Saharan Africa?

What Influences Microfinance Lending Interest Rates in Sub-Saharan Africa?

Identity, trust and altruism: An experiment on preferences and microfinance lending

We conduct laboratory and online experiment treatments to study willingness to lend, potential crowd out of philanthropic motivation by financial returns, and preference over borrowers in micro-finance lending. We distinguish between perceptions of transaction-related factors, such as neediness and trustworthiness, and identity-related factors such as ethnicity and gender. By looking at both channels together we are able to assess the extent to which identity-related differences in lending can be attributed to differences in how transaction-related factors are perceived among people with similar and different identities. We find that (1) both financial return and philanthropic motivation affect the amount lent, with little evidence that the former crowds out the latter; (2) lenders prefer borrowers with whom they share gender and ethnic similarity even after controlling for perceived riskiness and neediness; and (3) lenders are willing to trade greater risk in order to help more needy borrowers, but at a rate sensitive to their own degree of financial exposure. Lack of crowding out, homophily effects in some subgroups, and robustness to decision order are found in additional treatments with three subject pools, including one of non-student participants.

Credit rating and microfinance lending decisions based on loss given default (LGD)

This paper proposes a credit rating model that considers the impact of key macroeconomic variables on commercial banks' credit decisions and loss given default (LGD). The findings provide additional insight into the phenomena that under some circumstances a higher credit rating may lead to a higher LGD. The empirical analysis is based on actual bank data from 2,044 farmers in China. The theoretical analysis and empirical verification provides key insights into regulatory and commercial bank credit policy in a developing country setting, while helping to alleviate financing problems of small and micro credit entities.

ФОРМИРОВАНИЕ СОСТАВА КРИТЕРИЕВ ОЦЕНКИ ДЕЯТЕЛЬНОСТИ МИКРОФИНАНСОВОЙ ОРГАНИЗАЦИИ НА ОСНОВЕ АНАЛИЗА ПОКАЗАТЕЛЕЙ В МОДЕЛЯХ КАЧЕСТВА ЖИЗНИ

At present, microfinance lending has become an integral part of the financial sector in most countries of the world. Microfinancial organizations have many achievements in this area, because they provide a greater number of potential clients with documenting services than banks. Microfinance as a form of bank crediting was originally formed for solving an important social problem - improving quality of life for the population of poor countries. Today the working experience of microfinancial organizations in Russia shows that the purpose of these organizations primarily is obtaining commercial profit by providing microfinancial services for the people, as well as for small and medium businesses. There appear problems of interrelations between a greater part of population and microfinancial organizations. In terms of the state, the system of microfinancing can be regarded and project into society as a social and economic program. To evaluate the results of activity and efficiency results of microfinancial organizations there have been chosen criteria corresponding to those of life quality of the people. There have been considered methods of modernization of present models of analysis of life quality in order to evaluate the efficiency of microfinancial system in terms of the state interests. More than ten assessment models of life quality (ILI index, R. Veenhoven’s indicator of happy life expectance, Dutch labour cost index, Rogerson model, Maslow hierarchy model, Murdie model, Raphael model, etc.) have been determined, their weak and strong points have been stated in terms of their potential transforming possibilities. It has been stated that from some of these models it is possible to choose certain factors and to transform into indicators of assessment of efficiency of functioning the microcredit system.

‘Bang for buck’ in microfinance: Wellbeing mentorship or business education?

Abstract Within the microfinance literature, there is a growing interest in institutional logics. This paper explores ways that microfinance institutions can overcome the logic-tension of offering developmental programs and maintaining financial stability. First, I conduct a randomized control trial in Uganda to examine the financial and non-financial outcomes of loan recipients. Second, I use results from the field experiment, in a resource allocation model, to optimize the goals of a lending institution. I find that wellbeing mentorship, rather than business training, is the best ‘bang for buck’ when considering the interests of both the women entrepreneurs and the microfinance lending institution.

Microfinance expansion and its effects on cost efficiency

Although the scalability of microfinance has gained much attention in recent times, questions about its effects remain largely unanswered. Within the rationale for scalability, resides the inherent notion that a microfinance institution could make up for its loan-size disadvantage by disbursing enough small loans that would potentially translate in scale economies and thus cost efficiency gains. We test this assertion in the presence of “uncontrolled growth”—the surge in microfinance lending during the boom years of 2004–2008. In a nutshell, are cost efficiencies evident during rapid microfinance expansion? We find that aggressive microfinance growth consistently results in cost inefficiencies.

The impact of ethnic diversity on microenterprise start-ups

ABSTRACTUntil recently, factors determining the decisions made by microfinance institutions (MFIs) to extend loans to business start-ups had not been explored. Recent evidence shows that MFI performance with regard to funds issued for small business start-ups depends on MFI-level characteristics such as profit orientation. We argue that these decisions do not only depend on MFI-specific practices or characteristics, but also on the role ethnic diversity plays. Using data on microfinance lending activities for business start-ups, we examine the impact of ethnic diversity on microenterprise start-ups. Results show that ethnic diversity negatively affects the provision of financial capital for business start-up. Furthermore, results also suggest a negative association between ethnic diversity and the share of female borrowers recorded by MFIs. We examine social networks and outreach as potential channels through which ethnic diversity affects business start-ups.

Managing Operational Risk Related to Microfinance Lending Process using Fuzzy Inference System based on the FMEA Method: Moroccan Case Study

Abstract Managing operational risk efficiently is a critical factor of microfinance institutions (MFIs) to get a financial and social return. The purpose of this paper is to identify, assess and prioritize the root causes of failure within the microfinance lending process (MLP) especially in Moroccan microfinance institutions. Considering the limitation of traditional failure mode and effect analysis (FMEA) method in assessing and classifying risks, the methodology adopted in this study focuses on developing a fuzzy logic inference system (FLIS) based on (FMEA). This approach can take into account the subjectivity of risk indicators and the insufficiency of statistical data. The results show that the Moroccan MFIs need to focus more on customer relationship management and give more importance to their staff training, to clients screening as well as to their business analysis.