THE EFFECTS OF LOAN DEFAULTS ON THE OPERATIONS OF MICROFINANCE INSTITUTIONS (MFIs)

Abstract

This project work which is an explanatory survey was designed to assess the effects of loan default on the operations of Sinapi Aba Trust. The study seeks to come out with the means by which a Microfinance Institution (MFI) such as Sinapi Aba Trust (SAT) will reduce the level of loan default to the barest minimum (below 5%) if not to eliminate it. The objectives of the study were, to identify the factors responsible for loan default by clients of MFIs, to identify various ways by which loan officers can ensure repayment on time (thus eliminate loan default), to recommend options MFIs could adopt to ensure on-time repayment of loans and to identify the costs of loan default to MFI operations and its implications to its sustenance. The objectives were achieved through field survey using questionnaires and interviews by purposive sampling method to elicit information from specific staff of Sinapi Aba Trust as well as clients from the selected branches of the company. The data gathered from the field were analysed and findings and recommendations were put forth as evidence of the objectives being achieved to conclude the project. The research had two findings both from the FSOs and the clients. Though the clients opined some reasons for the loan default, whilst the opinions of the FSOs were held supreme over that of the clients. In conclusion, the effects of loan default had adverse effects on the MFIs (Sinapi Aba Trust), the Financial Service Officers (FSOs), and the clients of the MFIs in their operational sustainability and viability. We recommend that, there should be an industry database of clients, need for legal framework from the Central bank and standard monitoring system for MFIs and Clients to enhance the due diligence undertaken by MFIs.