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CAUSES AND CONTROL OF LOAN DEFAULT/DELINQUENCY IN MICROFINANCE INSTITUTIONS IN GHANA

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CAUSES AND CONTROL OF LOAN DEFAULT/DELINQUENCY IN MICROFINANCE INSTITUTIONS IN GHANA

 

 

Abstract

 

The study analysed the causes and control of loan delinquency/default in microfinance institutions in Ghana. Random sampling technique was used to select twenty-five microfinance institutions and two hundred and fifty clients for the study. Questionnaire and interview guide were used to collect data for the study. The study found the causes of loan default to include; high interest rate, inadequate loan sizes, poor appraisal, lack of monitoring, and improper client selection. Measures to control default were found to include training before and after disbursement, reasonable interest rate, monitoring of clients, and proper loan appraisal.  It was recommended among others that MFIs should have clear and effective credit policies and procedures and must be regularly reviewed. It was concluded that the government and hence Bank of Ghana should regularly monitor and supervise the MFIs so as to ensure safety of clients’ deposits and customers’ confidence.

 

Keywords: Microfinance Institutions, Loan Default, Loan Delinquency, Default rate, Micro, Small, and Medium Enterprises (MSMEs)