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
No
|
DS Division
|
Total Number
of Women Borrowers
|
Total Number of Arrears clients
|
Sample Size
|
1
|
Manmunai
North
|
148
|
30
|
20
|
2
|
Manmunai West
|
222
|
44
|
30
|
3
|
Eravur Patru
|
74
|
15
|
10
|
4
|
Manmunai
Patru
|
74
|
15
|
10
|
5
|
Manmunai
South West
|
37
|
07
|
05
|
6
|
Korlippatru
|
52
|
10
|
07
|
7
|
Porativupatru
|
23
|
05
|
03
|
8
|
Munmunai
Eruvil Patru
|
74
|
15
|
10
|
9
|
Koralaippatru
south
|
37
|
07
|
05
|
|
Total
|
741
|
148
|
100
|
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.Assumption
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.
Recommendations
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.
References
Todaro.M.P, Smith S.C. (2012) Economic
Development, 11th edition, Pearson.
Mungai John Njangiru, Maingi James &
Muathe SMA (2014). “Loan Repayment and Sustainability of Government Funded
Micro-Credit Initiatives in Murang’a County, Kenya”. International Journal of Business and Social Science, Vol. 5, No.
10(1): pp171-183.
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