A Study on the Challenges faced by the Women in repayment of Micro Credit – Special reference to Merchant Bank, Batticaloa.

A Soundaralingam & N Suvitha
A Study on the Challenges faced by the Women in repayment of Micro Credit

1.    Background of the study
A situation being unable to meet the minimum levels of income, food, health care, shelter and other essentials is known as absolute poverty (M.P.Todaro,S.C.Smith).  Over 40% of the world population lives on less than US $2 per day. According to the latest data, approximately 10% of the total population of Sri Lanka is living in poverty (Central Bank Report 2016). Extreme poverty shares in developing countries vary widely with regional figures ranging from 9% in East Asia and the pacific to 41% in Sub Saharan Africa. Poverty has serious impacts on the levels of living of the people.                      
In developing countries, women are more likely to poor. The reasons are following. Women have the lower earning capacity than men, limited control over their spouses’ income, limited access to education, formal sector employment, social security, and government employment program. In India and in the North and Eastern provinces of Sri Lanka, more families have been identified as women headed families. Most of these families have been affected severely by chronic poverty. In Asia 99% of the micro credit borrowers have been identified as women.
Micro Finance serves as an umbrella term that describes the provision of banking services by poverty – focussed financial institutions to poor parts of the population that are not being served by mainstream financial service providers. The core service of the micro finance is the provision of micro credit. These are the small loans to the working poor. Micro finance institutions are composed of a large variety of different forms which comprises NGOs, Cooperatives and specialised financial institutions. These Micro Finance Institutions provide micro credit services to the poor and help them in poverty alleviation and make improvement their levels of living.
In Sri Lanka, various micro finance practitioners have been engaged over the last few decades. Commercial banks, Development banks, Finance companies, Public welfare organisations, Co-operatives, Co-operative Rural banks, NGO-MFIs have been the key players in microfinance of Sri Lanka. People’s Bank, Bank of Ceylon, and Hatton National Bank, are the well-known commercial banks involved in microfinance activities of the country. Among development banks, Regional Development Bank and Sanasa Development Bank have been playing a vital role in microfinance market to meet the demand for financial transactions of the poor people.
In the Batticaloa district, women have been engaged in various self - employment activities such as home gardening, food production and sales, food processing, dried fish production, tailoring, broiler farming and running small shops.
There are166,700 families live in Batticaloa district in 14 DS Divisions. Of which, more than 30000 are women head families (District Secretariat- 2016). Many finance companies provide micro finance services towards women. Asia asset finance PLC, Pimbuth finance PLC, Brac Lanka finance PLC, Kanrich finance limited, Lanka orix finance PLC, Merchant bank of Sri Lanka and finance PLC, Nation Lanka Finance PLC, Prime Grameen Micro finance limited, and Commercial credit and finance PLC are some of them.

2.    Research problem
Most of the women who are living under the poverty line have been engaged in self- employment activities in the Batticaloa district. Some of them have been getting funds to develop their activities from microfinance institutions. Merchant Bank is a privately owned microfinance institution which have been providing microfinance services for a long time in this district. According to the data of 2015, 20% of the women borrowers were unable to repay their microcredits on time because of many challenges they faced. What types of challenges are faced by these poor women in repaying their micro credits? It has been identified as research problem for this study.
3.    Objectives of the research
The main objective of this research is to study the challenges which are faced by the women borrowers in the repayment of micro credit, lent by the Merchant Bank, Batticaloa branch.
4.    Scope of the study
This research study focuses on the activities of microfinance institutions of the Batticaloa district, challenges faced by the women borrowers on their repayment of the micro credits, the steps that should be taken by the borrowers, microfinance institutions, the government and the NGOs in avoiding that types of problems on the repayment in future.
5.    Significance of the study
Batticaloa district was affected by the war and Tsunamy. More than 30000 families have been identified as women-headed families. These families have been living in serious poverty problem. After the ending of the civil war, these families are able to commence self-employment activities for their livelihood. Microfinance institutions have been providing micro credit facilities to these affected women. In the process of repayment, more challenges have been faced by these women. Once these women lose their creditability, they are prevented from getting fresh microcredits from these institutions. Microfinance institutions also have been affected by the failure of the repayment of these credits. So it is an urgent need to make a thorough study on the failure of the repayment and the challenges faced by the poor women on the repayment of micro credits.

6.    Literature Review
A number of studies were reviewed. “Loan Repayment and Sustainability of Government Funded Micro-Credit Initiatives.” (2014), a research, done by Mungai Johan Nijangiru was reviewed. This study was conducted in Kenya. Main objective of this study was finding the problems in the government owned micro finance institutions, and the repayment. “Repayment problems in group lending of women borrowers”. This study was done by Umara Noreen and Iqbal Saif . This study covered 20 women groups. The findings indicate that the level of education and the income level of the women have a considerable influence on the repayment of micro-finance. “The Factors Affecting Loan Repayment by Women Entrepreneurs-A Case of Kisi County, Kenya.” The authors of the research were Timothy Nyaucho Omonywa and Willy Mwangi Muturi, published in 2015. This research study shows how the market information, training, membership, and the opportunities of earnings determine the repayment of Micro-finance. Tundui,C and Tundui,H carried out a research in 2013, under the title of “ Micro Credit, Micro enterprising, and Repayment Myth: The Case of Micro and Small Business Entrepreneurs in Tanzaniya”. This research studies the repayment problems of small women entrepreneurs in Tanzaniya. 

    7. Methodology
        7.1 Sample size and distribution.
        100 women were selected from the total women borrowers who failed to repay micro credit, borrowed from the Merchant Bank, Batticaloa in 2015. The sample size of arrears clients selected from the following 09 DS divisions based on the ratio of total women borrowers and the total number of failures in each D.S.division. Sample distribution follows.

Table 01: Sample Size and Distribution

DS Division

 Total Number of Women Borrowers

Total Number of Arrears clients

Sample Size

 Manmunai  North      
Manmunai  West
Eravur   Patru
Manmunai Patru
Manmunai South West
Munmunai Eruvil Patru
Koralaippatru south


7.2 Data Collection
       A structured questionnaire prepared in Lickert scale was mainly used for the primary data collection. Interview, discussion, observation also used for this purpose. The questionnaire contained statements regarding both personal and research information.
7.3 Method of Data Analysis
     The data collected from the arrears clients analysed by the Univariate analysis method. The latest version of SPSS package was used for that purpose. Descriptive statistics have been used to get the results.
   8.1   During the research period, there were no any changes in the rules and regulations that control the existing micro finance institutions’ activities in this districts.
   8.2   No any major economic crisis and natural disaster would be in the study period, in this area.
   8.3   Law and order situation is being normal in this area.

9. Results and discussion
     It was found that 30% of the failures are from Manmunai West D.S.division. Majority of the failures are between 31 and 40 years of age. 74% of the failure clients are married. 77% of the arrears clients have more family members (04 to 05 members). More than 50% of the arrears clients are engaged with agricultural and fishing activities. 42% of the failures have studied up to GCE ordinary level. 62% of these people get less than Rs.15000 as monthly income. 73% of the arrears clients have invested their borrowed fund in self- employment activities, as indicated in their credit application. But rest of them used that fund in unproductive areas. 76% of the failures got more than Rs.100000 as micro credit. The minimum time allowed for repayment for those loans is one year and maximum is three years. 50% of the failures have obtained micro credit three times from the same Merchant Bank branch. 92% of the arrears clients have borrowed from more than one institutions.
           Almost all the borrowers stressed that the unavailability of proper training regarding the self-employment activities from the Merchant Bank is the main challenge in the repayment of micro credit. It shows, poor training facilities caused for failure in repayment. The women recipient of micro credit expresses their dissatisfaction regarding the supervision on their self-employment activities. 90% of the failures indicated that the poor supervision of micro credit by the credit institution is a big challenge faced by them in the repayment. The nature of business for which the micro credit obtained, expected income, expected profit, total cost, and many related matters with the new business have not been studied before providing the micro credit by the Merchant Bank. The capability of the repayment of the micro borrowers had not been considered by the institution. More than 60% of the failures indicated that the above behaviour of Merchant Bank has created a challenge in their repayment.
           The repayment of the micro credit commences in the very next month of the provision of micro credit. It is very short period of time because some of the borrowers do not get their returns immediately. Sometimes it will take more than two or three months. More than 70% of the arrears borrowers consider this as a challenge that leads to failure in repayment. Women borrowers of this area face severe problem in marketing of their output. 70% of the arrears clients indicated that Merchant Bank did not show any interest in making marketing arrangements for the borrowers’ output.  Borrowers themselves have to find their own markets. This is also one of the challenges faced by the borrowers in repayment.
           More than 60% of the arrears clients indicated that the amount that is provided by the Merchant Bank is insufficient to make a big investment that provides more yield. Small investments provide small income which is insufficient to make repayments regularly. According to the borrower’s opinion, the rate of interest charged for the micro credit is very high. 67% of the failures have indicated that the higher rate interest is also challenge them in their regular repayment.
            Using the micro credit in agreed productive venture is an important factor that determine the failure of repayment. 60% of the arrears clients accepted that using the credit in consumption purposes caused for the failure of repayment. Some borrowers stated that they have spent part of the credit on medical expenditures.75% of the failures says because of the higher cost of living they are not in a position to make savings. That caused for failure of repayment. So, the cost of living should be considered as a challenge for these credit failures of Merchant Bank.
             70% of the failure borrowers indicated that due to the depending on only one source of income, they are unable to repay the credit. According to that, availability of income from various sources is a key factor that determine the regular repayment.  According to the 60% of the women failures, most of the borrowers have poor experience in their self-employment activities. For example, in the activities such as home gardening and dairy farming, they have no sufficient experience. They are unable to manage the deceases in animal husbandry and pests in home gardening. Because of these reasons, the borrowers are not able to settle their credits.
              Based on the response given by the borrowers, researcher found that 92% of the borrowers borrowed from more than one institution. This is also being as an important factor that caused for the failure of repayment. Due to the borrowing from many institutions simultaneously the borrowers are facing challenges in settle their micro credits. Women borrowers belong to the big families face more difficulties in repayment. Expenditures on food, clothing, medicines, and private tuitions are the more important components of the total cost of living of the clients. These Poor big families are unable to manage their cost of living due to these expenditures and face challenges in their repayment.
                  30% of the women borrowers accept that the unemployment of their husbands caused for failure in repayment. Males from this area has been affected by seasonal unemployment and underemployment. Due to the poor health condition, employability of the husbands is affected. As there is no support from husband, poor women borrowers are unable to repay their credits on time, which caused failure. Due to the borrowing from Merchant Bank, disputes arise between husband and wife. Due to that, husbands do not support in the repayment of micro-credit. Some women borrowers borrow without the knowledge of her husband for this reason, and face challenge in repayment. 40% of the arrears clients accept that there are conflicts between husband and wife due to the micro credit.
10. Conclusion 
The challenges which faced by the women in repaying micro-credit in Batticaloa have been studied. Finally, the researcher has come to the following conclusions.
More arrears clients to the Merchant Bank, Batticaloa are residing in the Manmunai West area. Major part of the failures is between 31to40 years. More arrears clients have more family members. More credit failures are engaged in agriculture related activities. Majority of the failures studied up to GCE O/L. Monthly income of most families is Rs.15000. Majority of the women failures have invested the borrowed fund in self- employment activities as agreed with Merchant Bank, Batticaloa. Major part of the arrears borrowers was issued more than Rs. 100,000. The duration for the recovery of the micro credit for the most borrowers is 01-03 years. Among the total arrears clients, half of them have got micro credits for three times from the Merchant Bank Batticaloa. More arrears clients have borrowed from more than one institutions.
The followings have been identified as the challenging factors confronted by the women borrowers in the repayment of micro-credit granted by the Merchant Bank, Batticaloa. 
Ø    Poor training arrangements in self-employment activities.
Ø    Insufficient supervision and guidance in their activities.
Ø    Failure in making estimation of the earning and repaying capacity of the borrowers.
Ø    Recovery of micro credits commence very early.
Ø    Poor arrangements in marketing of the borrowers’ products.
Ø    Insufficiency of the amount of credit.
Ø    Highest rate of interest.
Ø    Using the borrowed fund in consumption purpose.
Ø    Insufficient savings of women borrowers.
Ø    Insufficient level of other sources of family income.
Ø    Low level of experience in self-employment activities.
Ø    Borrowing from more than one source.
Ø    Dependency burden from family members.
Ø    Income volatility of husband.
Ø    Disputes between husband and wife.

Ø    Micro finance institution (Merchant Bank) should provide sufficient information regarding the self-employment activity which is selected by the micro borrowers.
Ø    Sufficient training on each activity must be provided by the Merchant Bank for its borrowers.
Ø    When the micro finance institutions provide credit to the borrowers, they should have studied the capability, talent, and experience of the borrowers in their selected ventures.
Ø    Merchant Bank should see whether the borrower use the fund in proposed project or not.
Ø    Merchant Bank should supervise the utilisation of the credit fund on their project and provide necessary advices time to time.
Ø    Credit recovery should be commenced on proper time period, especially after the harvesting/marketing.
Ø    Micro finance institution can provide advices on marketing. It can do market research and channel the borrowers on potential project.
Ø     In order to prevent the failure, Merchant Bank can encourage the borrowers to decentralise their family income.
Ø    Before providing Micro-credit, merchant Bank should make a clear study whether that particular borrower has borrowed from other institutions or not. This can avert excess burden of the borrower.
Ø    Merchant Bank must provide sufficient credit which facilitates the borrower to make a big investment and earn more income.
Ø    Rate of interest should be reasonable.
Ø    When necessary, Merchant Bank can grant some grace period for the repayment of the credit from widows and women who has been affected by natural disaster.
Ø    Borrowers must decide the maximum amount of credit based on their capability, and the maximum expected income from their project.
Ø    Borrowers should avoid borrowing from more than one institution.
Ø    Borrowers should avoid utilising their credit fund in non-proposed areas such as consumption and unnecessary expenditures.
Ø    Borrowers should expand their sources of income, e.g. Finding some additional earning works.
Ø    Before applying for a micro credit, borrowers should have studied the prospects of their proposed project.
Ø    Borrowers should maintain economy in their projects. They should control unnecessary expenditures in every activity related their ventures.
Ø    NGOs, functioning in Batticaloa district, can provide consultancy services to these women borrowers in investing their credit fund in potential projects. They also can provide counselling services to the families that has been affected by disputes arising from microcredit activities.

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Umara Noreen & Iqbal Saif (2013). “Group Loans Repayment Problems of Women Borrowers”. Academic journals, vol 7(38): Pp 3886-94.
Timothy Nyaucho Omonywa & Willy Mwangi (2015). “Factors Affecting Loan