Charaterizing Payment Default of Low-Cost Housing Loans

2016

While analyzing the loan delinquency behavior of home-loan borrowers of a Bangladeshi non bank financial institution, this paper investigated the determinants of home-loan delinquency. The primary contribution of the research delineated in this paper is to demonstrate the importance of borrower specific characteristics in determining the risk of credit loss on housing loan repayment for the lending institutions. It has been documented that the financial aspects of customers have significant influence on timely home-loan repayment risk. Firstly, customers with high loan to value ratio, high fixed obligation to income, higher debt burden ratio and higher installments to income ratio force the borrowers to become delinquent. Secondly, for the lending institutions the behavioral aspects should also be strongly considered, since it is evidenced in developing countries like Bangladesh, that though the customers might have high income or high property value yet they might be delinquent bec...

2011

ABSTRACT Microfinance refers to the provision of financial services like savings, money transfers, payments, remittances, and insurance to the poor based on market-driven and commercial approach. However many microfinance practices today still focus on micro-credit; that is providing the poor with small credit with the hope of improving their labour productivity and thereby lead to increment in household incomes. Microfinance products tend to be for smaller monetary amounts than traditional financial services. The design of products and services offered fit the financial needs of individuals, households and enterprises which can change significantly over time, especially for those who live in poverty. The main objective of the study was to establish why micro finance institutions have a higher default rate as compared to the formal banking sector. This research adopted a case study research design where Jitegemea Credit Scheme was used to establish why micro finance institutions have a higher default rate as compared to the formal banking sector. The study relied on primary data collected from the credit department of the organization with the aim of establishing how the organization selects and appraises potential clients for disbursement of funds and how the various aspects of clients affect their possibility of default.The findings revealed that those clients aged between 30-40 years who have an average of 2 children and have a O’level education take up loans more frequently from MFIs since this niche of clients is active in terms of business and other economic activities therefore in need of financial support. Secondly, the findings indicate that few borrowers had been supervised on loan utilization which is a pointer as to why default rates could be higher in MFIs. The result of this study concluded that inadequate supervision of borrowers on loan utilization and loan repayment lead to default of repayments. Supervision is an important aspect since it compels borrowers to be committed; a fact expressed by borrowers who said they considered supervision important in loan repayment. In order to minimize default in repayments, MFIs should ensure that whoever they are lending to meets a minimum threshold in asset value before loans are accessed. The study recommends that MFIs should educate the borrowers on the need to spend less on household consumption so as to reduce on default as well as borrowers being able to save their money since a good number of the borrowers did not use the loans t for the intended. Such diversions were the reason why they were unable to keep up to date in their repayments. The study further recommends that in order for MFIs to reduce default in loan repayments, they should monitor the borrowers regularly so as to ensure that they use the loans they received for the agreed and intended. This can they can do through getting regular account statements from borrowers as well as physically visiting the borrowers to monitor and evaluate the progress of their loan projects

International Journal of Consumer Studies, 2009

Manufactured homes (also known outside the US as prefabricated homes) are a viable housing option for low‐income buyers, but traditional mortgages are not available for purchase of manufactured homes because of a perception of higher risk of default among purchasers of manufactured homes. Research suggests that creditscoring models which incorporate objective data such as income, debt‐to‐income ratio and credit history result in an accurate and objective predictive tool to estimate likelihood of late payments and default among traditional home buyers. This study showed that these same models can be applied similarly to purchasers of manufactured homes. A Tobit model was developed to evaluate which factors most accurately predict default and late payment behaviour among borrowers who purchased a manufactured home. The model showed that when decomposed into the probability of making a late payment and number of late payments, credit score and income are both significant predictors in ...

International Journal of Accounting, Finance and Risk Management, 2021

The study examined the determinants of credit default by Micro Finance Institution borrowers the case Hawassa city. The researcher used a quantitative research approach with an explanatory research design to establish the effect of the independent variables on the dependent variable. The primary data were collected from 360 sampled borrowers of Micro Finance Institutions using a structured questionnaire. Both descriptive and inferential statistics analysis were done using SPSS version 21.0. Descriptive statistics were used to identify whether there is a large variance in data. The study also used correlation analysis to see the degree variation and direction of relationship among variables. Inferential statistics were used to test hypotheses. The researcher employed logit model to identify the impact of explanatory variables on dependent variable. The results of the study revealed that ten independent variables incorporated in the model that included gender, education, age, lack of experience, having other sources of income, lack of financial planning skill, loan diversion rate, repayment period, involvement in service sector business activity, and loan follow up have a statistically significant impact on credit default. Based on the findings of the study, the researcher forwarded possible recommendations for the Micro Finance Institutions to improve credit collection of borrowers more than the current status.

Research Journal of Finance and Accounting, 2020

This study assesses factors that Affecting Default Risk in Project Finance: A Case of Omo Micro Finance, Hawassa Branches. Primary data were used in the study. The required data were collected from 338 project finance beneficiaries of Omo Micro Finance institutions and these respondents selected by adopting a simple random sampling technique. Both qualitative and quantitative methods were used. The data collected through questionnaire were analyzed using SPSS software version 20. Descriptive statistics such as frequency and percentage were applied. Furthermore, inferential statistics Chi-square and binary logistic regression were used to identify major factors that affect the default risk. In addition, the data collected through interview were analyzed qualitatively using narrative for triangulation. The findings of the study show that 57% of borrowers in the study area did not repay the amount of money they borrowed as per credit schedules. The major factors that affect the default risk were sex of the borrower, educational level, family size, advisory visit, time lines of loan, repayment period, borrowing experience and training. The study therefore recommends that the stakeholders in the microfinance sector should ensure that the loan borrowers have access to adequate relevant technical training and follow-up in entrepreneurial microfinance businesses.

The study presents an appraisal of loan default management mechanisms in microfinance institutions within the Kumasi Metropolis using First Allied Saving and Loans Limited. The analysis is based on 88 responses from staff and customers of the institution. The results indicate that loans have positive and significant effects on their businesses and standard of living. The factors that contributed to loan default include inadequate skills on the part of customers and bank-induced factors such as high interest rates, inadequate loan amounts, and delays in loan delivery process. The institution applies three main approaches in tackling loan defaults – refinancing, rescheduling, and court action. It is recommended that, microfinance institutions develop appropriate policies on credit management in order to ensure efficient credit processing.

American Journal of Management Science and Engineering , 2019

The study was conducted on the assessment of causes of loan default in Wasasa Microfinance S.C Sabata town branch office in order to indicate information that enables to ensure its future sustainability. Both questionnaire and interview guide were used to collect data which was analyzed using descriptive analysis. The survey made on 99 clients and 10 employees shows that the majority of clients are females which is prioritized by the institution to empower poor female household heads. More than half clients of the institution work in their own business generating income of 5000-50,000 birr per month. Based on the result, poor loan appraisal, Burden of interest, operational inefficiency and Poor customer handling are the four major internal causes of the loan default while political instability, poor business plan, existence of illegal business and price fluctuation are four major external causes of loan default. Wasasa Microfinance uses different mechanisms to control default like negotiation with customers, writing letter of warning to defaulters, penalizing according to loan agreement and taking to court. It is recommended that Wasasa Microfinance S. C control different causes of loan default by awareness creation through training both customers and employees, and increasing institutional efficiency in operational procedures and policies. It is better for the institution to focus on capacity building, incentivizing the model staffs and using clear monitoring and evaluation system.

MBA thesis, 2014

The study sought to examine the relationship between borrower character, behaviour (relationship lending) and credit repayment performance in Housing Finance Bank. The methodology used was cross-sectional survey design with a sample population of 392 respondents that were selected using purposive sampling technique and simple random sampling. A self-administered questionnaire was used to collect the data, processed and analyzed using the Statistical Package for Social Sciences (SPSS V19). Self-administered questionnaires and personal interviews were used to collect responses. The findings revealed that there were significant positive correlations between borrower character, behaviour (relationship lending) and credit repayment performance which implied that the way borrowers behaved during credit accessibility or after acquiring credit from the bank, had a lot of effect on determining the relationship that is formed during the lending process which would in turn affect effectiveness and efficiency of credit repayment. From the regression results, it was apparent that borrower character was a strong predictor of credit repayment performance; therefore, the management of the bank should put a lot emphasis on development of well nurtured relationships with borrowers so as to smoothen the lending process. Likewise, management should carry out a lot of awareness to the borrowers through training, workshops and dialogue so as to sensitize them on how best to invest the money and be able to pay back their debt without straining hard.

Microfinance institutions have been extending loans to different deficit units in Ghana and this study aimed at addressing the following issues: identifying the causes of loan default and the processes involved in granting loan by Microfinance institutions in Ghana. The convenient and purposive sampling techniques were employed to select respondents to provide answers to questionnaires. The population of the survey constituted the management and non-management staff and customers of some selected microfinance institutions in Ghana. Hypotheses of the study will be analyzed using correlation and regression. Results of the study show that there are high positive correlation between the constructs of loan default causes and how loans are granted. Keywords: Loan Default Rate, Monitoring and Repayment, Microfinance institutions.