Determinants of defaulting by collateral lending groups in micro financing
- Authors: Modisagae, Katlego Ipeleng
- Date: 2016
- Subjects: Microfinance
- Language: English
- Type: Masters (Thesis)
- Identifier: http://hdl.handle.net/10210/237288 , uj:24311
- Description: M.Com. (Financial Management) , Abstract: The rural poor with no physical collateral typically have virtually no access to small business financing. The microfinance movement replaces physical collateral with social collateral as a means for rural poor persons to gain access to financing for their microbusinesses. Microfinance entails lending to self-formed groups of close-knit community members who are jointly liable for loans advanced to individual group members. Advantages include borrower screening by fellow group members, mutual assistance in micro-enterprises, monitoring repayment and imposing social sanctions to delinquent group members. Despite the use of group lending, Microfinance Institutions (MFIs) are still faced with the risk of default by borrowers and the absence of physical collateral means there is no recourse to borrower assets for repayment. Default on loans, which can be caused by characteristics of the lending groups themselves, has the undesirable effect of eroding the capital base of MFIs and threatening their continued existence. The main research problem is that MFIs are faced with borrower default that threaten their operational sustainability. The main purpose of this study is to investigate the effect of group characteristics on the probability of borrower default. The characteristics of interest are: the age and gender of the borrower, group size, loan amount, instalment size, loan duration, loan cycle, location of group (rural or urban), business experience of the borrower, business savings, business assets, record of loan centre meeting attendance, family relations in a group and intra-group business risk correlation. The importance of this understanding will practically assist MFIs with insights regarding which factors to eliminate and which to enhance in the design of the groups to which they lend. The probit regression model was used on secondary data from a loan programme at a large South African MFI. The key findings of the study indicate that probability of default decreases with larger groups, more female borrowers in a group and larger borrower savings. We also found that probability of default increases with larger loan...
- Full Text:
- Authors: Modisagae, Katlego Ipeleng
- Date: 2016
- Subjects: Microfinance
- Language: English
- Type: Masters (Thesis)
- Identifier: http://hdl.handle.net/10210/237288 , uj:24311
- Description: M.Com. (Financial Management) , Abstract: The rural poor with no physical collateral typically have virtually no access to small business financing. The microfinance movement replaces physical collateral with social collateral as a means for rural poor persons to gain access to financing for their microbusinesses. Microfinance entails lending to self-formed groups of close-knit community members who are jointly liable for loans advanced to individual group members. Advantages include borrower screening by fellow group members, mutual assistance in micro-enterprises, monitoring repayment and imposing social sanctions to delinquent group members. Despite the use of group lending, Microfinance Institutions (MFIs) are still faced with the risk of default by borrowers and the absence of physical collateral means there is no recourse to borrower assets for repayment. Default on loans, which can be caused by characteristics of the lending groups themselves, has the undesirable effect of eroding the capital base of MFIs and threatening their continued existence. The main research problem is that MFIs are faced with borrower default that threaten their operational sustainability. The main purpose of this study is to investigate the effect of group characteristics on the probability of borrower default. The characteristics of interest are: the age and gender of the borrower, group size, loan amount, instalment size, loan duration, loan cycle, location of group (rural or urban), business experience of the borrower, business savings, business assets, record of loan centre meeting attendance, family relations in a group and intra-group business risk correlation. The importance of this understanding will practically assist MFIs with insights regarding which factors to eliminate and which to enhance in the design of the groups to which they lend. The probit regression model was used on secondary data from a loan programme at a large South African MFI. The key findings of the study indicate that probability of default decreases with larger groups, more female borrowers in a group and larger borrower savings. We also found that probability of default increases with larger loan...
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Lending patterns and adaptations made to the Grameen Bank Model in South Africa
- Authors: Moolla, Raeesa
- Date: 2011-12-12
- Subjects: Microfinance , Banks and banking , Grameen Bank Model (Bangladesh) , Grameencredit
- Type: Thesis
- Identifier: uj:1887 , http://hdl.handle.net/10210/4241
- Description: M.A. , In South Africa, high unemployment rates, uneven distribution of opportunities and poverty are major concerns for the government. Poverty is defined as the deprivation of people due to the lack of access, and their right, to certain commodities. In 2004, close to 15,4 million people were living below the poverty line. In addition to this, in 2005, 53 percent of South Africans, equating to 16,4 million persons, were excluded from formal financial services. Microcredit has been advocated as a tool to reduce poverty. A world renowned microfinance model, the Grameen Bank model of Bangladesh has had success in not only reducing poverty, but also allowing poor people access to formal financial services. The bank has 7,93 million borrowers, with 97 percent being female clients, and one third of its borrowers have crossed the poverty line. Four organisations in South Africa have replicated this model. These organisations are the Small Enterprise Foundation, Marang Financial Services, The Women's Development Businesses, and the South African National Zakah Fund. These organisations have achieved in reaching 130,000 clients across South Africa, and extended over R1 billion in loans. However, only four of the nine provinces in the country have been infiltrated effectively. The impacts on these borrowers lives, and their households has been exceptional. Many of the families now have increased selfworth, a stable income, job security and access to credit in order to advance their businesses. In addition, Grameencredit has allowed thousands of South Africans access to legal, formal financial services. Thus, Grameencredit has been advocated to be an effective method in the fight against poverty.
- Full Text:
- Authors: Moolla, Raeesa
- Date: 2011-12-12
- Subjects: Microfinance , Banks and banking , Grameen Bank Model (Bangladesh) , Grameencredit
- Type: Thesis
- Identifier: uj:1887 , http://hdl.handle.net/10210/4241
- Description: M.A. , In South Africa, high unemployment rates, uneven distribution of opportunities and poverty are major concerns for the government. Poverty is defined as the deprivation of people due to the lack of access, and their right, to certain commodities. In 2004, close to 15,4 million people were living below the poverty line. In addition to this, in 2005, 53 percent of South Africans, equating to 16,4 million persons, were excluded from formal financial services. Microcredit has been advocated as a tool to reduce poverty. A world renowned microfinance model, the Grameen Bank model of Bangladesh has had success in not only reducing poverty, but also allowing poor people access to formal financial services. The bank has 7,93 million borrowers, with 97 percent being female clients, and one third of its borrowers have crossed the poverty line. Four organisations in South Africa have replicated this model. These organisations are the Small Enterprise Foundation, Marang Financial Services, The Women's Development Businesses, and the South African National Zakah Fund. These organisations have achieved in reaching 130,000 clients across South Africa, and extended over R1 billion in loans. However, only four of the nine provinces in the country have been infiltrated effectively. The impacts on these borrowers lives, and their households has been exceptional. Many of the families now have increased selfworth, a stable income, job security and access to credit in order to advance their businesses. In addition, Grameencredit has allowed thousands of South Africans access to legal, formal financial services. Thus, Grameencredit has been advocated to be an effective method in the fight against poverty.
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Some viewpoints on the micro finance industry : a literature study
- Authors: Schutte, Christiaan Ernst
- Date: 2012-08-14
- Subjects: Microfinance , Poverty
- Type: Mini-Dissertation
- Identifier: uj:9250 , http://hdl.handle.net/10210/5697
- Description: M.Comm. , Poverty can be defined as, the lack of access to the basic needs and wants of a person, thus a lack of income and access to assets. The effect is a person who has no self-esteem. This place a burden on the economy of any nation and no country can survive or grow if the majority of its population is poor with no access to basic commodities and assets or a source of income. The spiraling effect of poverty is such that it becomes impossible for the poor to loosen themselves from the grip of poverty. The main reason is that most of the poor is illiterate and can not find sustainable jobs. It is important to break the grip of poverty, this means that the needs and want of poverty stricken people must be addressed in such a manner that it will create sustainability of income and the building of self-esteem. There are many ways of alleviating poverty i.e. subsidies by government or grants given by foreign governments. These methods are not always the best way of solving the problem, as it does not train the people to be self-sufficient. One solution in the fight of poverty is micro finance. But just as grants and subsidies are in themselves not the only solution, micro finance can not be the solution by itself. Micro finance should be a part of the solution in the alleviation of poverty. The rationale is that micro finance and its characteristics can satisfy the credit needs of a person but it also supplies finance to the poor and thus builds the self-esteem of the person. The roots of micro finance originated during the 1950's. However micro finance per se did not exist. The nature of the transactions can be compared to that of grants or subsidies. These pioneering transactions have paved the way for the real micro finance industry. The industry as we know it today has come in existence during the 1970's. During 1976 Dr. M. Yunus in his studies realised that the poor does not have access to micro finance and he formulated the idea that the people must be empowered to create their own income stream. He also realised that a bank can not create a repayment culture and that it is essential that repayments be controlled by peer pressure. The funding of such an initiative was to be done by the members themselves and not from funding by way of grants. He initiated the Grameen Bank of Bangladesh on the above principles and today is the first real successful micro finance institution. Today the Grameen Bank is based on the principle that groups mainly finance themselves with 10% of its funds derived from previous borrowers and the government. The Grameen Bank has a good record of assisting in the process of alleviation of poverty. A further positive input by the Bank is that it assists in the social upliftment of its borrowers. South Africa is a developing country with a middle income classification. This is however not a true reflection of its total population. Due to apartheid there has been an ethnic and racial disparity. This has caused a major difference in the split of income, access to assets and credit. South Africa has to investigate methods to alleviate poverty. The method of micro finance and the status of the industry in South Africa are investigated by this dissertation. The possibility of using micro finance as it is today in South Africa is also investigated and a possible solution to the utilisation of micro finance is tabled.
- Full Text:
- Authors: Schutte, Christiaan Ernst
- Date: 2012-08-14
- Subjects: Microfinance , Poverty
- Type: Mini-Dissertation
- Identifier: uj:9250 , http://hdl.handle.net/10210/5697
- Description: M.Comm. , Poverty can be defined as, the lack of access to the basic needs and wants of a person, thus a lack of income and access to assets. The effect is a person who has no self-esteem. This place a burden on the economy of any nation and no country can survive or grow if the majority of its population is poor with no access to basic commodities and assets or a source of income. The spiraling effect of poverty is such that it becomes impossible for the poor to loosen themselves from the grip of poverty. The main reason is that most of the poor is illiterate and can not find sustainable jobs. It is important to break the grip of poverty, this means that the needs and want of poverty stricken people must be addressed in such a manner that it will create sustainability of income and the building of self-esteem. There are many ways of alleviating poverty i.e. subsidies by government or grants given by foreign governments. These methods are not always the best way of solving the problem, as it does not train the people to be self-sufficient. One solution in the fight of poverty is micro finance. But just as grants and subsidies are in themselves not the only solution, micro finance can not be the solution by itself. Micro finance should be a part of the solution in the alleviation of poverty. The rationale is that micro finance and its characteristics can satisfy the credit needs of a person but it also supplies finance to the poor and thus builds the self-esteem of the person. The roots of micro finance originated during the 1950's. However micro finance per se did not exist. The nature of the transactions can be compared to that of grants or subsidies. These pioneering transactions have paved the way for the real micro finance industry. The industry as we know it today has come in existence during the 1970's. During 1976 Dr. M. Yunus in his studies realised that the poor does not have access to micro finance and he formulated the idea that the people must be empowered to create their own income stream. He also realised that a bank can not create a repayment culture and that it is essential that repayments be controlled by peer pressure. The funding of such an initiative was to be done by the members themselves and not from funding by way of grants. He initiated the Grameen Bank of Bangladesh on the above principles and today is the first real successful micro finance institution. Today the Grameen Bank is based on the principle that groups mainly finance themselves with 10% of its funds derived from previous borrowers and the government. The Grameen Bank has a good record of assisting in the process of alleviation of poverty. A further positive input by the Bank is that it assists in the social upliftment of its borrowers. South Africa is a developing country with a middle income classification. This is however not a true reflection of its total population. Due to apartheid there has been an ethnic and racial disparity. This has caused a major difference in the split of income, access to assets and credit. South Africa has to investigate methods to alleviate poverty. The method of micro finance and the status of the industry in South Africa are investigated by this dissertation. The possibility of using micro finance as it is today in South Africa is also investigated and a possible solution to the utilisation of micro finance is tabled.
- Full Text:
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