Repayment Schedule Research Articles

Another Day Another Dollar Metric? An Event History Analysis of Student Loan Repayment

Students increasingly borrow money to attend postsecondary education. Yet, little attention in the literature has been paid to the repayment of student loans, aside from failure indicators like default. This study examines a nationally representative sample of bachelor's degree recipients and the time it takes to reach different repayment thresholds on federal student loans. Motivated by a new federal emphasis on student loan repayment rates, we use event history analysis to show that bachelor's degree recipients have little trouble paying down $1 of their principal balance upon entering repayment. After just six months, 65 percent of this student borrower population had already done so, often paying back much more than $1. However, borrowers enrolled in federal Income-Driven Repayment (IDR) plans took much longer to pay down any loan balance, and many never did in the time we observed their repayment. The consistently negative relationship we find between IDR and paying down loan balances highlights a tension between repayment rate policies and the push for IDR reform of the U.S. repayment system. We discuss the policy implications of these findings and offer an alternative repayment metric to accommodate the contrasting goals and structures of standard repayment schedules versus income-contingent repayment policies.

U.S. Interest Rate and Household Debt Sustainability: The Case of Korea

This paper revisits the issue of household debt sustainability in Korea responding to changes in U.S. interest rates. We investigate not only the transmission channels from U.S. interest rates to domestic interest rates, using the Bayesian VAR (vector autoregression) model, but also the issue of identifying households that are vulnerable in terms of their debt repayments, and we execute projections for the upcoming years given conditional forecasts and various macroeconomic scenarios. The estimation results indicate that first, the domestic policy rate will likely increase and then stagnate conditionally on the path of the U.S. policy rates. Second, the ratios of vulnerable households over total indebted households, which has been growing since 2012, will likely expand mildly over the upcoming years given an approximately 1.6%p gradual increase in interest rates and stable macroeconomic environments. Finally, however, the projected trend of domestic interest rates can cause a rapid expansion in the ratios of vulnerable households, in conjunction with a series of combined negative shocks such as highly concentrated principal repayment schedules, sharp declines in housing prices, and the occurrence of a crisis.

Corporate Ijarah Financing: A Case of an Islamic Commercial Bank

The Islamic banking industry facilitates both consumer and corporate clients by providing needed capital through different modes of financing. The prerequisites of financing the corporate clients are generally different from that of the individual customers. This study discusses a detailed narrative of how a corporate customer, Sufi oil, availed financing from Bank Islami through ijarah mode of financing in a Shari‘ah compliant way. It discusses step by step procedure of dealing with corporate client starting from the first stage when a representative of the firm visited the Bank Islami and discussed the firm needs and the possible procedure and mode of financing. The study provide a comprehensive insight in the internal procedures involved in evaluating each and every client. Different branches and their respective role and responsibilities at the branch level and their interaction with the Head Once have been highlighted. The study has also briefly discussed various risks that may encounter the transaction and the manner in which the perceived risks have been mitigated. The focus of the study is to differentiate the corporate ijarah from the consumer ijarah in terms of both documentation and procedure. The repayment schedule for the case is also described in detail along with the rent that the Bank Islami would be getting by leasing any vehicle to the corporate entity.

Interest free micro credit loans: Pakistani female entrepreneurs

PurposeThe purpose of this study is to examine the impact of interest free micro credit loans on the lives and business of the female borrowers.Design/methodology/approachBoth primary and secondary data have been used. Case studies of four different female entrepreneurs have been included as part of the research. The observation was conducted over an extended period of time. Subsequently, interviews were conducted with four beneficiaries to know the role played by interest free micro credit loans in improving (or not!) their lives and businesses.FindingsInterest free micro credit loans played a significant role in bringing a positive change in the lives of the borrowers. Clients mentioned that “zero interest rate” and “flexible repayment schedules” were the main reason for obtaining loans from this source. Further, they suggested that there is a need for training/workshops, feedback/monitoring, networking and online repayment system to make interest free micro credit loans more successful.Research limitations/implicationsThe focus of the study is limited to only four female borrowers in Karachi. Future studies can include other cities and cross-gender comparisons for better understating.Practical implicationsThis study will help microfinance organizations to assess the problems faced by the borrowers; it will also shed light on the motivations of borrowers.Originality/valueInterest free micro credit loans were provided to women entrepreneurs in a social experiment and implications were observed.

The Role of Microfinance Institution for Poverty Reduction in Ethiopia

Micro finance institutions are basically set up with the goal of poverty alleviation. These institutions have a very important and effective role in both developed and in developing countries because it is considered the backbone of their economies. This indicates that without the establishment of micro finance institutions, no developing nation can achieve a viable economic growth/development or the reduction of poverty since they lack enough amount of money. Micro finance institutions can play a role in reduction of poverty and improving the socio-economic condition of the poor since there is a positive contribution of micro finance institution and social development, in which there is better access to health, education and basic services and greater social respect. The contribution of education level and entrepreneurial skills has positive impact to poverty reduction in which there is increase in income, better living conditions and better access to basic needs. This review examines on the role of micro finance institutions for poverty reduction and the challenges on the performance of operating micro finance institution. The review result suggest that major problems that faces the micro finance institution in order to take and operate their business are absence of training for borrowers, weak monitoring and support system, high interest rate, uncomfortable loan repayment schedule, loan size, loan capital shortage, lack of use of technology and cost effective methods, human resource problem, lack of access to credit, insufficient support from government, limited management capacity of microfinance institutions, less attraction on financial sustainability, improper regulations, and limited management capacity of micro finance institutions. Keywords: MFIs, poverty, role of MFIs, problems on performance, poverty reduction DOI : 10.7176/JESD/10-5-04 Publication date :March 31 st 2019

Impact Assessment of State Assistance Program to Agri-based Micro, Small and Medium Enterprises in the Philippines

The Philippine business economy is largely fuelled by micro, small and medium enterprises. In order to cope with the competition with large firms in the industry, the government has poured investments in form of technology upgrading in the last 15 years. The research aimed to assess the impact on productivity and profitability of state assistance to agri-based micro, small enterprises. Partial Budget Analysis was used in assessing the profitability of the proponent after the intervention. The study showed an average increase in enterprises' production volume, sales level, and generated employment by 157.9%, 51.65%, and 191.82%, respectively. Further, the assistance generated a positive increase in income. However, the defective equipment, failure to meet the repayment schedule, and non-compliance to documentary requirements were among the major problems encountered by the proponent during program implementation. Nonetheless, the state assistance was able to spur innovations among the enterprises. Market potential, market knowledge, financial capability to repay the loan as well as the entrepreneur’s resiliency were some of the observed success factors of MSMEs. With its positive firm-level impact, the state assistance program has generally been able to improve its proponent’s competitiveness and thus worthy for continuous implementation.

Financing higher education in an imperfect world

This paper explains why under laissez-faire the financing of higher education is both inefficient and inequitable. It is argued that a government-run scheme of income contingent loans (ICLs) for higher education would achieve superior outcomes. We advocate a refinement of existing ICLs schemes. Following Apps, Long and Rees (2014), the paper proposes a piecewise-linear repayment schedule that serves both equity and efficiency objectives.

When irrelevant alternatives do matter. The effect of focusing on loan decisions

In this paper, we investigate some implications of recent results about salience on loan decisions. Using the framework of focus-weighted utility we show that consumers might take out loans even when that yield them negative utility due to the focusing bias. We suggest, however, that this can be counterbalanced and consumers might be more prudent in their decisions and less likely to take out such loans when the usual fixed-installments plan is coupled with an equivalent decreasing-installments option. Moreover, we show that this is true even for loans with prepayment options or when borrowers take default into consideration. We argue that harmful loan consumption could be decreased if a policy would prescribe presentation of loan repayment schedules in a way that employs this effect.

An Exploratory Study on the Factors Contributing Loan Repayment Default among the Loan Borrowers in Micro Finance Institutions in Shah Alam, Selangor

This research is carried out to discover the factors contributing to loan repayment default in micro finance institutions based in Shah Alam, Selangor, Malaysia. The findings will be useful for the micro finance institutions in Malaysia in selecting and implementing suitable policies to reduce defaults. In this research, data is collected through questionnaires. These questionnaires are distributed to 120 loan borrowers of micro finance institution in Shah Alam, Selangor. Furthermore, the data was analyzed with the software known as Statistical package for Social Science, for short SPSS. This study established that nature of business operated by loan borrowers is one of the factors that will influence loan repayment. Finding of this study are established that there is a positive relationship between nature of business operation and negative relationship between age of borrowers, diversion of funds by borrowers as well as repayment schedule to loan defaults.

ALTERNATIVE STRATEGIES ON IMPROVING SMALL AND MEDIUM ENTERPRISES ACCESS TO SEED CAPITAL. A CASE OF DODOMA MUNICIPAL, TANZANIA

A crucial element in the development of the SME sector is access to finance, particularly to bank financing, given the relative importance of the banking sector in serving this segment. Small Medium Enterprises plays important and crucial roles in the economy development of any country. The main purpose of the study is to evaluate the Alternative Strategies on Improving Small and Medium Enterprises (SMEs) S’ Access to Seed Capital. This study is descriptive and combines both primary and secondary data methods of data collection. The method of convenience sampling was employed in arriving at the 80 SMEs, which the researchers believe possesses the experience relevant for this study and who have sufficient time and were willing to participate. Data are analyzed and summarized by using both SPSS and excel. Key determinants for seed capital acquisition which are: fair and low interest rates; philanthropy; in-excessive demand for collateral security; less cumbersome procedures and realistic repayment schedule. The study further revealed that high interest rates; lack of finances and unfavorable tax charges as major constraints to the growth of SMEs. In a nutshell, the major challenge could be interpreted to mean lack of seed capital.

Myth buster

Practice sustainability is a necessity for the viability of the mixed animal veterinary practice industry. To keep mixed animal practices thriving, a plan is needed to transition practices from 1 generation to another. Buying into a mixed animal practice is often promised to a new associate doctor but not fulfilled. The process often lacks communication and a good plan. Drs. Wenger and Middleton will share their experiences on how their practice has transitioned from 1 generation to another. They continue to focus on transition as new-generation partners are joining the practice. They will touch on how to value a mixed animal practice. Purchasing a practice is a return on investment for the owner that is selling and a huge investment for the new owner that is buying shares of the practice. Much has been written about valuing, buying, and selling small animal practices, but there is little information on how this to relates to mixed animal practices. Large student loan debts complicate the process and often stop the discussion because no solution is presented. Current student loan income-based repayment plans may create challenges to young veterinary practice owners due to an increase in income, thereby increasing student loan payments and creating cash flow dilemmas. Drs. Wenger and Middleton conclude that it is possible to become an owner with student loan debt and complicated loan repayment schedules, and will share their experience as to how to make it happen.

Repayment flexibility in microfinance contracts: Theory and experimental evidence on take up and selection

This paper studies the impact of introducing repayment flexibility in microfinance contracts. I build an adverse selection model that predicts the existence of a separating equilibrium where lenders are able to achieve higher profits by simultaneously offering a rigid and a flexible repayment schedule, instead of just a rigid contract. Lab-in-the field games with Indian microentrepreneurs confirm the model predictions. I offer subjects both a flexible and a rigid repayment schedule and exogenously vary the price of the flexible schedule. I find that high-revenues borrowers are more likely to take up the flexible schedule than low-revenues ones, and even more so when the flexible schedule is more expensive than the rigid one. Risk-averse borrowers, on the contrary, are more likely to stick to the rigid contract when this is cheaper than the flexible contract. The paper thus indicates that lenders should offer a menu of contracts where the flexible and the rigid contract are provided simultaneously, at different prices. Back-of-the-envelope calculations indeed suggest that this mixed contract is more profitable than the standard, rigid microfinance contract.

EFFECT OF MICROFINANCE ON POVERTY REDUCTION: A CRITICAL SCRUTINY OF THEORETICAL LITERATURE

The provision of micro-credit to the poor more especially to the youth and women in the rural poor is an important factor on poverty reduction through empowerment. Most research studies done, have indicated some improvements in job creation as well as increase in income levels through self-employment. There has been signs of independence on the side of the women as well as the youth, on matters concerned with household expenditure on the side of women and education expenditure on the side of the youth being able to raise incomes from selfemployment. The researcher has also discovered that most researchers have used at least two to four models the popular ones being: Grameen solidarity group model, targeting women groups’ model, regular repayment schedule model and village banking model. The researcher has dealt with various discussions, the major ones being: that micro-credit has been able to uplift at-least 55% of its customers out of poverty, they are being supplied by clean drinking water. It is also coming out clear that the poorest of the poor are not benefiting because the majority of these people are not able to repay their loans making them even loose the little they had. It is also advocated that the microfinance institutions should open their businesses to the middle level customers like teachers, clerks, nurses so that they may enable the institutions to operate profitably. Finally the studies have given a warning to their clients that micro-credit is not medicine to the poverty. The favorable recommendations have been to diversify their facilities to be able to cover more clients, to provide training to both their staff and customers for efficient utilization of the loans, and also be able to charge reasonable rate of interest rate

Can flexible agricultural microfinance loans limit the repayment risk of low diversified farmers?

Using a unique data set from a commercial microfinance institution in Madagascar, this article investigates the credit risk of microfinance loans with flexible repayment schedules for crop farmers. Flexible repayment schedules allow a redistribution of principal payments during periods with low agricultural returns to periods when agricultural returns are high through predefined grace periods. We apply propensity score matching to investigate how different numbers of grace periods reflecting different levels of production diversification affect the credit risk of crop farmers. In this attempt, three delinquency categories reflecting various levels of credit risk are assessed. Moreover, we consider the specifics of the regions where loans were disbursed. Our results reveal that loans with predefined grace periods show significantly higher delinquencies. This effect is significant over all three delinquency categories for loans disbursed to low diversified crop farmers. For the more diversified farmers, this effect is only significant for the lowest delinquency category. Hence, predefined grace periods might bridge periods with low agricultural returns but come at the cost of higher credit risk for the lender. The magnitude of these effects is, however, small.

Repayment policy for multiple loans.

The Repayment Policy for Multiple Loans is about a given set of loans and a monthly incoming cash flow: what is the best way to allocate the monthly income to repay such loans? In this article, we close the almost 20-year-old open question about how to model the repayment policy for multiple loans problem together with its computational complexity. Thus, we propose a mixed integer linear programming model that establishes an optimal repayment schedule by minimizing the total amount of cash required to repay the loans. We prove that the most employed repayment strategies, such as the highest interest debt and the debt snowball methods, are not optimal. Experimental results on simulated cases based on real data show that our methodology obtains on average more than 4% of savings, that is, the debtor pays approximately 4% less to the bank or loaner, which is a considerable amount in finances. In certain cases, the debtor can save up to 40%.

Microfinance as a Development and Poverty Alleviation Tool in Rural Bangladesh: A Critical Assessment

Poverty is multidimensional in nature and exists in every part of the world. Microfinance is considered one of the most important programs to achieve poverty reduction, particularly in Bangladesh. It has been estimated that nearly 45% of Bangladesh's population lives below the poverty line. This qualitative research study was conducted in order to determine the effectiveness of microfinance programs and the contributing factors to the high‐level of poverty among microfinance beneficiaries in the district of Bogra, Bangladesh. Study findings indicated that microfinance programs were ineffective as a result of high interest rates; insufficient loans; unproductive use of loans; corruption and poor skills of microfinance institution staff; weekly repayment schedules; and physical and mental harassment of poor women. Additionally, the lack of employment opportunities, education, healthcare facilities and social safety nets; natural disasters; the dowry system; and the rising cost of basic daily needs have also contributed to chronic poverty.

'Effective Profit Rate Methodd and Revenue Recognition of Islamic Banks: Risk Sharing or Risk Transfer?

This paper examines the impact of using the ‘Effective Profit Rate Method’ (EPRM) in estimating revenue from the financing activities of Islamic Banks (IBs). Data for the study were sourced from audited financial statements, Islamic finance contracts (i.e. Al Ijarah Thumma Al Bai @ Islamic leasing) and interviews with three Islamic finance experts. It was found that EPRM is widely used by Islamic banks in Malaysia and the sale-based contract was found to be the single major (>75%) financing mode. Simulation of the repayment schedule for the Al-Ijarah Thumma Al-Bai (AITAB) financing arrangement indicates that IBs collected a large proportion of the revenues in the early years of the financing period and payments of principal by customers are proportionately low at the beginning of the financing period. The findings were subsequently benchmarked using the ‘Straight Line Method’ (SLM) and an equal distribution of revenues and payment of principal was observed throughout the financing period. The above results raised a concern regarding the nature of the customer-financier relationship. This concern stems from the fact that Islamic finance is built on the concept of ‘Risk Sharing’ instead of ‘Risk Transfer’. When a customer terminates their financing contract in the early years of the financing period, the IB has collected a relatively bigger portion of revenues, while the customer has made lower payments of principal. This outcome raised our concern as to whether EPRM is a ‘Risk Sharing’ or a ‘Risk Transfer’ mechanism, and whether the bank exploited their superior position by imposing EPRM that gives them advantages to shift their financing risk. Also, the customer is placed at a disadvantage, as this technique will directly or indirectly protect the IB from early termination of financing contracts. Islamic finance experts provide mixed views on the above observation. The interviewees acknowledged the importance of this issue to the industry and to the public. Regulators, bankers and other stakeholders should look critically into this matter and provide clear guidance to the market players.

Evaluating corporate bonds and analyzing claim holders’ decisions with complex debt structure

Although many different aspects of debt structures such as bond covenants and repayment schedules are empirically found to significantly influence values of bonds and equity, many theoretical structural models still oversimplify debt structures and fail to capture phenomena found in financial markets. This paper proposes a carefully designed structural model that faithfully models typical complex debt structures containing multiple bonds with various covenants. For example, the ability for an issuing firm to meet an obligation is modeled to rely on its ability to meet previous repayments, and the default trigger is shaped according to the characteristics of its debt structure such as the amount and schedule of bond repayments. Thus our framework reliably provides theoretical insight and concrete quantitative measurements consistent with extant empirical research such as the shapes of yield spread curves under various firm’s financial statuses, and the impact of payment blockage covenants on newly-issued and other outstanding bonds. We also develop the forest, a novel quantitative method to handle contingent changes in the debt structure due to premature bond redemptions. A forest consists of several trees that capture different debt structures, for instance those before or after a bond redemption. This method can be used to analyze how poison put covenants in the target firm’s bonds influence the bidder’s costs of debt financing for a leveraged buyout, or investigate how the presence of wealth transfer among the remaining claim holders due to a bond redemption influences the firm’s call policy, or further reconcile conflicts among previous empirical studies on call delay phenomena.

Reforming Higher Education Finance in Turkey: The Alumni - Crowdfunded Student Debt Fund “A-CSDF” Model

This study presents an innovative and sustainable system for mobilizing Turkish university alumni to contribute to a crowdfunded pool repackaged as a student debt instrument with an elaborate performance tracking tool, various payoff structures and income-contingent repayment schedules. The ultimate aim is to offer a remedy for the conspicuous global shortage of alternative finance sources and various forms of aid to higher education students in the short-term, and, through enabling equitable and egalitarian access to quality higher education, transforming society and enhancing economic development in the longer-term. The model rests upon a six-dimensional framework and its infrastructure is facilitated by a newly emerged form of digitally enhanced financing, “crowdfunding”. The research method involves content analysis and data triangulation for validation purposes to determine the sub-themes surrounding the higher education problem in Turkey. The theme-driven keywords are searched for on Turkey’s first original social network, Eksi Sozluk, to uncover trends and biases towards student loans, debt repayment and associated concepts. Subsequently, the same keywords are utilized in a Google Trends search volume analysis, and are finally validated by a focus group discussion. The theoretical framework to explain students’ attitudes towards borrowing and loan repayment and the motivation behind alumni and charitable giving, rests mainly on behavioral economics. The A-CDSF Model uniquely addresses the higher education finance problem in Turkey and offers an easily implementable original solution for institutions and policy makers.

CMS Clarifies How to Report Medicare Overpayments

There is finally some clarity about how to report and return Medicare overpayments, under a final rule released by the Centers for Medicare & Medicaid Services. The final regulation clarifies that health providers have identified an overpayment when they “have or should have, through the exercise of reasonable diligence, determined [they have] received an overpayment and quantified the amount of the overpayment.” Overpayments must be reported and returned only if identified within 6 years of the date the payment was received — down from the 10 years included in the proposed rule released in 2012. Physician organizations and other health care stakeholders had criticized the proposal, calling the 10-year time frame unreasonable and burdensome. The 6-year time frame is also more reasonable and will save practices money by limiting their audit obligations, said Scot T. Hasselman, JD, a Washington health law attorney. The revised definition of identification makes more sense for physicians, particularly that identification exists when providers have quantified the amount of the overpayment, Mr. Hasselman noted. In many cases, it takes time to decipher how much money is owed after discovering a potential overpayment, he said in an interview. “This all goes to: When does the clock begin ticking for the 60 days?” he said. “The language in the final rule provides for a standard that is easier to apply. The final rule also allows the 60-day deadline for returning overpayments to be suspended if a provider requests an extended repayment schedule. In the past, “people could be in a real pickle if they didn’t have the money to return,” Mr. Hasselman said. “This [provision] is important, especially for smaller [practices] and physicians who may not have big credit lines or the cash flow of an institutional provider.” The final rule also clarifies how to report overpayments. Providers and suppliers must use an applicable claims adjustment, credit balance, self-reported refund, or another appropriate process to satisfy the obligation to report and return overpayments, the rule states. If a provider has reported a self-identified overpayment using the self-referral disclosure protocol managed by CMS or the self-disclosure protocol managed by the Health and Human Services Office of Inspector General, the provider is considered to be in compliance with the rule. But the final rule is not entirely positive, according to Houston-based health law attorney Michael E. Clark, JD. Many health providers had requested clarification about the level of resources small providers are expected to devote to investigating potential overpayments. Commenters suggested CMS allow for more defined overpayment responses based on provider size and resources. The agency did not do so, saying that providers, “large and small have a duty to ensure claims are accurate and appropriate and to report and return overpayments they have received.” Refusing to allow scalable responses is unfortunate for practices that do not have the ability to react to overpayments as robustly as larger chains, Mr. Clark said. “The agency was unwilling to go that far,” Mr. Clark said. “They’re not going to give a lesser standard for smaller providers. They’re going to look at the facts and circumstances. It gives [CMS] subjectivity, whereas doctors would rather have more clarification and objectivity.” Alicia Gallegos is a Frontline Medical News freelance writer based in Chicago.