Repayment Frequency Research Articles

Credit Management as a Predictor to the Sustainability of Microfinance Institutions

Purpose: This study was carried out to understand the relationship between credit management and the financial performance of Micro Finance Institutions, taking a sample of 43 MFIs administrators in the towns of Dschang, Mbouda and Bafoussam of Cameron.
 Method: The study applied a quantitative research design, where questionnaires were used. Data was collected from both primary and secondary sources. Data was processed and analyzed using formal tables, pie charts, multiple linear regressions, and Anova, chi-squared, Cronbash’s Alpha, Pearson tests were carried out to understand the relationship between credit management and financial performance Microfinance Institution in Cameroon. A total of 43 respondents were considered out of the entire population.
 Findings: Findings indicate that credit policies, debt recovery technique mechanisms are significant and positively related to the portfolio quality of MFIs in Cameroon. More specifically, good lending policies such as proper study of the loan documents, group liability, monitoring repayment frequency would increase financial performance. In addition, recovery techniques such as constant customer reminder, prolonging recovery period, penalties etc, enabled MFIs to perform financially well.
 Originality value: This study explores and shed light on an important factor responsible in majority for the unpaid installment debts in the Cameroon context; the MFI itself through the personal and friendly relationships with clients. Thus we provide practical strategies for the recovery of these debts till the last franc. In addition, we show that these strategies increase MFI’s sustainability across their profitability.

Repayment performance for pay-as-you-go solar lamps

This paper provides a descriptive analysis of repayment performance for pay-as-you-go solar lamps, based on pilots conducted in six countries in sub-Saharan Africa and Asia during 2014 and 2015. In our sample, 95% of accounts were eventually paid off by the end of the observation period, and the median time to ownership was one week less than the nominal repayment term. Default rates of 11% and 7% were observed with a grace period of 50% and 100% of the repayment term, respectively. We document differences between weekly and monthly accounts (e.g., although time to ownership and on-time performance were better in weekly accounts, longer-term default rates were lower for monthly accounts). The observed payment patterns demonstrate that customers make extensive use of the flexibility allowed in rent-to-own models (e.g., fewer than 30% of customers followed a regular schedule of fixed installments). The analysis identified repayment frequency as one key factor associated with this behavior, as flexible payment patterns were much more likely to occur in weekly accounts than in monthly accounts. This paper highlights the importance of business model design in the diffusion of off-grid energy products in developing countries, outlining opportunities for future research in this domain.

Gender and other repayment determinants of microfinancing in Indonesia and Sri Lanka

Purpose – The repayment performance of microfinancing loans funded by donors amounting to hundreds of millions of dollars is an important issue, because it indicates the effectiveness of utilising these funds to alleviate poverty. The purpose of this paper is to develop models to predict the repayment success of microfinancing loans. Design/methodology/approach – Analysing data relating to 1,109 random loan records from Indonesia and Sri Lanka, the study develops models to predict the repayment probability of microfinancing loans using logistic regression. Findings – There are significant differences between the two countries. In Sri Lanka, the time to approve and disburse the loan, loan cycle, gender and age of the borrower, whether a group or individual borrower, the purpose for which the loan is used and visiting frequency by the loan officers were found to be significant when predicting the repayment. Only three factors were significant in Indonesia: time to approve and disburse the loan, interest repayment frequency and gender. Both models have over 70 per cent prediction accuracy. Originality/value – The models developed can be used in the loan appraisal stage to improve the repayment performance of microfinancing institutions saving hundreds of millions of dollars in bad debt write offs.

The Economic Returns to Social Interaction: Experimental Evidence from Microfinance

Microfinance clients were randomly assigned to repayment groups that met either weekly or monthly during their first loan cycle, and then graduated to identical meeting frequency for their second loan. Long-run survey data and a follow-up public goods experiment reveal that clients initially assigned to weekly groups interact more often and exhibit a higher willingness to pool risk with group members from their first loan cycle nearly two years after the experiment. They were also three times less likely to default on their second loan. Evidence from an additional treatment arm shows that, holding meeting frequency fixed, the pattern is insensitive to repayment frequency during the first loan cycle. Taken together, these findings constitute the first experimental evidence on the economic returns to social interaction, and provide an alternative explanation for the success of the group lending model in reducing default risk.

REPAY AS YOU EARN: LOAN REPAYMENT FREQUENCY, CASH FLOWS, AND SAVINGS OF HOUSEHOLDS

AbstractThis paper analyses household cash management and provides evidence that a household's access to credit is directly improved by its savings. Households that are unable to save tie loan repayment to cash flows and repay as soon as money is earned. We find that income frequency increases loan repayment frequency by 32%, but this effect reduces significantly on controlling for savings. Results also show that households on average pay 3.6% higher interest on loans with repayment schedules matching household cash flows. We show this by exploiting unique ‘preferred’ loan repayment data available for each household and by using presence of marriageable‐age girls in household as instrument for savings. Copyright © 2012 John Wiley & Sons, Ltd.

Repayment Frequency and Default in Microfinance: Evidence From India

In stark contrast to bank debt contracts, most micro-finance contracts require that repayments start nearly immediately after loan disbursement and occur weekly thereafter. Even though economic theory suggests that a more flexible repayment schedule would benefit clients and potentially improve their repayment capacity, micro-finance practitioners argue that the fiscal discipline imposed by frequent repayment is critical to preventing loan default. In this paper we use data from a field experiment which randomized client assignment to a weekly or monthly repayment schedule and find no significant effect of type of repayment schedule on client delinquency or default. Our findings suggest that, among micro-finance clients who are willing to borrow at either weekly or monthly repayment schedules, a more flexible schedule can significantly lower transaction costs without increasing client default. (JEL: 012, 016, 022)

Savings Lead to Improved Borrowing: Empirical Analysis of Rural Indian Households

This paper provides evidence that access to saving instruments directly improves access to credit. In a typical framework, households borrow, invest and then repay loan with interest. If households can save without difficulty, they should be able to follow any repayment frequency. However, in reality it is likely that income gets diverted into miscellaneous expenses. If households realize this, then it is possible that they tie the loan repayment schedule to their income schedule. In this paper, I provide a simple model and empirical support to illustrate this point. The results indicate that a household which does not save is 32 percent more likely to tie the repayment schedule of a loan to its income schedule and pays 3.6 percent higher interest rate for a loan. I am able to show this by exploiting the unique 'preferred' loan repayment frequency data available for each household.

Policies and Impact: An Analysis of Village-Level Microfinance Institutions

This paper uses variation in policies and institutional characteristics to evaluate the impacts of village-level microfinance institutions in rural Thailand. To identify impacts, we use policies related to the successful/unsuccessful provision of services as exogenous variation in effective financial intermediation. We find that institutions, particularly those with good policies, can promote asset growth, consumption smoothing and occupational mobility, and can decrease moneylender reliance. Specifically, cash-lending institutions—production credit groups and especially women's groups—are successful in providing intermediation and its benefits to members, while buffalo banks and rice banks are not. The policies identified as important to intermediation and benefits: the provision of savings services, especially pledged savings accounts; emergency services; and training and advice. Surprisingly, much publicized policies such as joint liability, default consequences, or repayment frequency had no measured impacts. (JEL: 012, 016)

Implementing impact assessment and monitoring systems in Zambia

This article describes the process by which an impact monitoring system was designed and built into a fairly recently launched Zambian microfinance organization, CETZAM. Developed with funding from DFID and initial technical assistance from consultants, a system was designed to monitor impact through a means test for all new clients, an annual impact survey and an exit survey for dropout clients. The first results from the system have fed into CETZAM's decision-making on loan size, repayment frequency and new products. This article describes the lessons learned, and assesses whether this system matches up to the principles of an 'impact audit'.

The true cost of loans with rests between adjustment of principal

In a rested interest loan, the frequency of adjustment of the outstanding principal is different to the repayment frequency. In this paper, the structure of rested interest loans is investigated and compared to more conventional loans in which the frequencies are the same.A nomogram for the determination of the regular repayments associated with a loan is presented. In addition, the true cost of the loan is obtained using both the effective rate of interest and the equivalent reducing rate of interest per adjustment period. The sensitivity of these rates with respect to the number of repayments per adjustment period is also discussed.

Deposit contracts with smokers: Varying frequency and amount of repayments

Predictions concerning the effects of variations in the parameters of deposit contracts with smokers were derived from the operant conditioning literature. The predictions were tested by group comparison studies involving 83 subjects in 12 treatment groups, using three deposit procedures. As predicted, increasing the amount of money returned in each deposit repayment improved short term abstinence rates. Increasing repayment frequency had a similar but not quite significant effect. The predicted relationship between frequency and amount of repayments, with variations in frequency having more effect, was not found. There were no long term differences between groups. The usefulness of the operant framework was therefore partially demonstrated. Some clinical implications of the findings are discussed.