Loan defaults in microfinance institutions, a case of pride micro finance head office

Abstract

This study on loan defaults in Micro Finance Institutions; at Pride Micro Finance Headquarters. Specifically, the study intended to: assess the default rate of the selected MFI, determine the factors influencing the likelihood of loan default and identify effects of loan defaults to borrowers and Pride Micro Finance Head Office. The study used a descriptive design to gather information at the study area. Non-purposive (simple random) sampling technique was applied to select 196 respondents. Purposively, Pride Micro Finance Institution and key informants were selected. Primary data was collected directly from the respondents using structured interview and semi - structured interview, whereas secondary data was collected through a documentary review of sources including published and unpublished materials. Data obtained was analyzed by descriptive statistics and logistic regression using SPSS version 11.5. Logistic regression model estimated the factors influencing the likelihood of borrowers to default. Majority of respondents identified loss of collaterals and denial of future loan as major effects of loan default. Loss of interest incomes, reduction of operating profit through provision for bad debts and reduction of lending capacity are effects reported by Pride Micro Finance Head Office. Further, this study recommends management of PMF to involve borrowers in reviewing loan repayment terms, effective monitoring of loans, credit training programs and where necessary the use private debt collectors.