Assessment of Loan Repayment

CHAPTER ONE
INTRODUCTION
1.0 Introduction
This chapter presents the background of the studies, statement of the problem, significance
of the studies, the purpose and objectives of the studies, research questions, scope and
delimitation of the studies, limitation of the studies, definition of key terms, and organization
of the study.
1.1 Background of the Study
Loan repayment is the act of paying back money in maturity previously borrowed from
a lender. Repayment usually takes the form of periodic payment that normally includes part
principal plus interest in each payment (Alemut, 2002). Microfinance is a source of financial
services to low income individuals and small business that don’t have access to banking and
related service (khandiker, 1995). The beginnings of microfinance movement are most closely
associated with the economist Mohammed Yunus, who in the early 1970’s was a professor in
Bangladesh. In the midst of a country-wide famine, he began making small loans to poor
families in neighboring villages in an effort to break their cycle of poverty. The experiment was
surprising success, with Yunus receiving timely repayment and observing significant changes in
the quality of life for his loan recipients. Unable to self-finance an expansion of his project, he
sought governmental assistance, the Gramen bank was born. In 2006, Yunus was awarded noble
peace prize (Perkins, 2008).
On the other hand, the defaulters’ percentage in microfinance is increasing day by day.
There are many evidences from different countries stating that more delinquencies in personal
loan, credit card, and microfinance etc. Increasing defaults in the repayment of loans may lead
to very serious implications. For instance, it discourages the financial institutions to refinance
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the defaulting members, which put the defaulters once again into vicious circle of low
productivity. Therefore, a rough investigation of the various aspects of loan defaults, source of
credit, purpose of the loan, form of the loan, and condition of loan provision are of utmost
importance for both policy makers and the lending institutions. (Kelly, 2005).
Microfinance has the ability to raise the living conditions of the poorer segments of
the population, but the performance of most of the Micro-Finance Institutions in Liberia, in the
repayment of loan to approximately 25,000 borrowers has been disappointing. This research is
an effort to cross check or investigate the defaults of loan repayment of client to Micro-Finance
Institution in Liberia. It is proven all over the world that Microfinance played an important role
in the alleviation of poverty. Central Bank of Liberia (CBL, 2016). Microfinance institutions
(MFIs) are one of the specialized financial institutions. (Mosley & Hulmey, 1998). They are the
agencies or institutions which are either established by private individuals, government, donor
agencies as well as non-governmental organizations with sole aim of ensuring financial
inclusion. The essence of MFIs are to provide microfinance services such as provision of micro
loan, micro saving, micro insurance, transfer services and other financial products targeted at
poor or low income individuals. (Kurfi, 2008).
However, increasing non-performing loan (bad debt loans) was a reason for
provision and other administrative charges and on the other hand drastically reduces the banks
income and profitability due to suspension of interest on non- performing loan. This undesirable
fact tarnishes the image of the bank and negatively contributes to play its part in the countries
development endeavors. Besides, ties the bank’s capital, affects its liquidity position, and
reduces its competitiveness locally or in the global market and hence not compatible with a
development bank that is expected to play an active and indispensable role by maintaining its
sustainability. Most deposit taking microfinance institutions consider financial investments; that
is a portfolio of assets you put money into with the intend it grows or appreciate such as
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purchasing new equipment or a launch of new product, as these institutions forecast their future
strategy. Future investments require financial resources to pay for those investments (Ali, 2004).
Microfinance Institutions in Liberia
Pursuant to the provisions of Part II, Section 3, of the New Financial Institutions Act
of 1999 and the Microfinance Regulatory and Supervisory Framework for Liberia, the Central
Bank of Liberia (CBL) promulgates and issues regulations to regulate the establishment,
operations and business conduct of microfinance deposit-taking institutions (MDIs) that seek to
take deposits from the public and engage in microfinance lending (Central Bank of Liberia,
2010). The inception of the New Financial Institutions Act of 1999 and the Microfinance
Regulatory and Supervisory Framework for Liberia of the microfinance Act of 1999, saw a
number of emerging and existing micro-finance institutions applied for licenses to permit them
to take deposits from members and the general public. The main objective of the Microfinance
Act is to regulate the establishment, operations, business and conduct of microfinance
institutions in Liberia through licensing and supervision. Central Bank of Liberia (CBL, 2010).
According to a report by CBL (2018), the number of licensed banks in the economy
remained 9 in 2018 with 93 branches across the Country, from 90 in 2017 while Diaconia MDI
remained the only deposit-taking microfinance institution In Liberia. There has been a
monumental proliferation in non-implementing loans in deposit taking microfinance institutions
over the last 6 years; this has led to a proliferation in liquidity, this gloomy impact on the
investment decisions of the firm leading to poor financial performance of the firm (AMFI,
2013). Central Bank of Liberia 2018 monthly economic review volume 4 No.7 shows that non-
implementing loans decrease by 15.2% with decline in total commercial banks loans by 4.9%.
When a microfinance institution clutches sufficient liquid assets to fund its calculated plans, it
demands no supplementary fund to go after those investments (CBL, 2018).
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1.2 Statement of the Problem
It has been observed that Microfinance institutions are faced with challenges of loan
repayment defaults by clients. Increasing defaults in the repayment of loans by clients may lead
to very serious implications. For instance, it discourages the financial institutions to refinance
the defaulting members, which put the defaulters once again into vicious circle of low
productivity. The banking sector in Liberia has been facing various challenges and constraints.
One of the biggest challenges was management of non-performing loans. The soaring low
achievement of repayment performance may have adverse impact on the financial performance
of the bank as well as the progress of the economy. (Wondimagengehu, 2012).
Microfinance can play a great role in the battle against poverty. Many empirical
evidences indicate that Liberia is one of the poorest countries in the world and also among the
lowest to be found in the category of low income countries in Africa. World Bank revealed that
nearly 50% of the Liberian population lives below the line of poverty. Due to this, its economic
history has been the history of how it has become more and more difficult for the people to meet
even their minimum requirement of subsistence. One of the reasons behind the poverty and
backwardness of Liberia is the culture of saving and loan. Microfinance is a general term to
describe a financial service to low income individual or to those who do not have access to
typical banking services. Microfinance is also the idea that low income individuals are capable
lifting themselves out of poverty it given access to financial services. It is in this regard that this
study was designed to assess loan repayment of clients to Micro-finance. (World Bank, 2008).
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1.3 Significance of the Study
This study provides resourcefulness for many users, specifically it helps the
Microfinance Institutions to improve their performance, the strategies they used in loan recovery
as well as the way they evaluate and monitored clients since they understand loan repayments
default by clients as well as the challenges faced in loan recovery. The paper also helps us to
know microfinance institutions deeply and also it serves as input for further researches. From
these findings micro finance institutions can determine proper mechanism to mitigate the
already existing challenges and any emerging problems. This study hopes to shed more light to
the governing bodies and regulators of microfinance institutions and risk management
departments of financial institutions to be aware of the threat posed by non- performing loan,
liquidity and financial performance of the firm.
1.4 Purpose and Objective of the Study
The purpose of the study was aimed to do an Assessment of Loan Repayment Performance of
Clients to Micro Finance Institutions in Liberia with a case study of Diaconia (MDI) in
Monrovia (2012-2017). To answer the below research questions the following 3 objectives was
identified and were considered for the purpose of this study:
1. To identify the factors or challenges MFIs facing with loan repayments
2. To determine the implication of defaults of loan repayments had on micro-Finance
Institutions
3. To identify ways to mitigate the defaults of loan repayments
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1.5 Research Question
The researcher used the following research questions as a guide for the study:
1. What are the factors or challenges affecting loan repayments?
2. What implications defaults of loan repayments had on MFIs?
3. What are the ways to mitigate the defaults of loan repayments?
1.6 Scope and Delimitation of the Study
This research focused on Diaconia Mdi and its clients in Liberia. This research was
aimed to do an Assessment of Loan Repayment of Client to Microfinance Institution In Liberia
among staffs and clients b/w (18-54yrs) at the indicated bank above from 2012-2017. Data was
collected through structural questionnaires (close ended) at the indicated bank in Liberia.
1.7 Limitation of the Study
The researcher encountered numerous challenges which restricted its acceptable
procedure of implementation. The lack of some staffs to share information was one of the
limitations to the research. The huge finding requires for this research work, lack of adequate
materials for support were also some of the limitations. Acquiring of data from the banks was a
great challenge as most of the information cannot be found on their webpage. The process of
categorizing facts from various sources was time compelling as no precise source give all the
needed data. Getting respondents or clients from the field to respond to the questionnaire was
challenging because you don’t know the exact client from Diaconia in person as well as you
have to locate them.
The research was also faced with financial constrain as well which prevented the
researcher from delving into and gathering details information that would facilitate the
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researcher work to a greater extend. Moreover, some of the respondents were unable to response
to the questionnaire in time due to issues that might relate to confidentiality as well as the huge
cost attach to printing of the work.
1.8 Definitions of key terms
Network of microfinance Institutions in Liberia- a conglomeration of MFIs coming together
for the betterment and well-being of its development
Central of Bank of Liberia- is the bank responsible for licensing, regulating, and overseeing
the financial sector in Liberia.
Commercial Banks- banks that accept deposit from the public and giving loans for investment
with the aim of earning profit.
Deposit Taking Microfinance Institutions-often defined as a financial service for poor and
low income clients offered by different type of providers.
Micro Finance Institutions- an organization that offers financial service to low income
populations
Profit before tax- also called Ebit, Is a measure that look at a firm’s profit before the firm’s has
to pay corporate income tax
Return on Assets- measure or show the percentage of how profitable a company asset is in
generating revenue.
Return on Equity-is a measure of a company’s annual return or is a measure of how well a
company’s uses investment to generate earnings
Market risk - refers to the risk that an investment may face due to fluctuations in the market.
The risk is that the investment’s value will decrease. Also known as systematic risk, the term
may also refer to a specific currency or commodity.
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Product Mix - also called as Product Assortment refers to the complete range of products that
is offered for sale by the company. In other words, the number of product lines that a company
has for its customers is called as product mix.
Non- implementing loans- is a loan in which a borrower is default and has not made any
payment of principal or interest for some time especial after 90 days.
Asset quality- is an examination or evaluation of asset to measure the credit risk associated with
it
Liquidity risk- is a risk that occur when an individual investor, business, or financial institution
cannot meet its short- term obligation
Operation efficiency- is used to measure the effort extended to achieve the target efficiently
and effectively
Loan repayment- It is an arrangement of in which a lender gives money or property to a
borrower and borrower agree to return the property and repay the money, usually along with
interest at some future time
Default-Defaults is defined as failure to pay a debt loan at the right time or who did not repay
the loan within due date.
1.9 Organization of the study
The study was organized into five chapters. Chapter one gives the introduction to the
study. It is subtitle as background of the studies, statement of the problem, significance of the
studies, purpose and objectives of the studies, research questions, scope and delimitation of the
studies, limitations of the studies, and definition of key terms. Chapter two contains the review
of related literature on factors associated with loan repayment. Chapter three focused on the
research methodology which contains the research method, research design, population of the
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studies, sample size and sampling techniques, research instrument, data collection procedure and
data analysis procedures, chapter four emphases interpretations of data, data presentations and
data analysis while chapter five summarize the study, draw conclusions and make
recommendations.
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CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.0 Introduction
In this chapter, we discussed the related literature that is accessible concerning the default of
loan repayment of clients to MFIs. This chapter covers the theoretical framework which is
subtitle liquidity risk theory, liability management theory, commercial loan theory and financial
Performance; Determinants of financial performance, the empirical studies, and the summary of
the review of related literature.
2.1 Theoretical Framework
The research will focus on three theories namely Liquidity Risk Theory, Liability
Management Theory and Commercial loan theory of liquidity. These theories provide the
theoretical proof on the relationship between credit risk and financial performance of Firms.
2.1.1 Liquidity Risk Theory
According to a research conducted by NJERI ( as cited in Halling & Hayden,2006)
explains that a bank should define and identify the liquidity risk to which it is exposed for all
legal entities, branches and subsidiaries in the jurisdictions in which it is active. Every bank
irrespective of their size faces eight risks and these risks shape every banking institution. One of
the eight risk face by these institutions is credit risk.
According to the Bank for International Settlements (BIS), credit risk is defined as the
potential that a bank borrower or counterparty will fail to meet its obligations in accordance
with agreed terms. It is most likely caused by loans, acceptances, interbank transactions, trade
financing, foreign exchange transactions, financial futures, swaps, bonds, equities, options, and
in the extension of commitments and guarantees, and the settlement of transactions
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(Gangreddiwar ,2015). Because the bank is aware of the fact that the borrower might not settle
his or her obligation, the banks give money for short duration of time. This is because the
money they lend is public money. This money can be withdrawn by the depositor at any point of
time. So, to avoid this chaos, banks lend loans after the loan seeker produces enough security of
assets which can be easily marketable and transformable to cash in a short period of time.
A bank is in possession to take over these produced assets if the borrower fails to
repay the loan amount after some interval of time as decided. This is important as the bank
requires funds to meet the urgent needs of its customers or depositors. The bank should be in a
condition to sell some of the securities at a very short notice without creating an impact on their
market rates. The borrower should be in a position to repay the loan and interest at regular
durations of time without any fail. The repayment of the loan relies on the nature of security and
the potential of the borrower to repay the loan. Unlike all other investments, bank investments
are risk-prone. A bank’s liquidity needs and the sources of liquidity available to meet those
needs depend significantly on the bank’s business and product Mix which also refer to
as Product Assortment refers to the complete range of products that is offered for sale by the
company. In other words, the number of product lines that a company has for its customers.
Balance sheet structure and Cash flow profiles of its on- and off-balance sheet obligations. As a
result, a bank should assess each major on and off balance sheet Position, including the effect of
implant choice and other unforeseen exposures that may affect the bank’s sources and uses of
funds, and determine how it can affect liquidity risk. A bank should consider the interactions
between exposures to funding liquidity risk and market liquidity risk (Jeanne & Svensson,
2007).
A bank that gets liquidity from capital markets should accept that these sources may
be more uneasy than traditional retail deposits. For example, under conditions of stress, lenders
in money market instruments may demand higher premium for the risk they intend to take, at
considerably shorter maturities, or refuse to extend financing at all. Moreover, dependency on

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the full functioning and liquidity of financial markets may not be realistic as asset and funding
markets may dry up in times of stress (Perera et al., 2006).
In the study conducted by Nasir (2013) “contemporary issues and challenges of
microfinance in India”, has discovered that the pressing challenges in MFIs are lack of product
diversification, low outreach, high interest rate, late payment or delay in payment by
microfinance clients , inadequate funding, neglecting urban poor and high cost of transaction.
The paper has dual on the challenges of MFIs without providing any viable solution to address
them. According to Nawai, and Shariff, (2013) have found that one of the major obstacles of
MFIs is loan re-payment problem. They identified the remote causes for the poor loan
repayment in Malaysia. In the paper they implored the reasons why MFIs clients are
lackadaisical in loan repayment. The paper shown that among the causes of poor loan re-
payment are borrowers` attitude toward their loan, amount received, business experience and
family background. Therefore, in the conduct of this research the researchers used qualitative
approach while quantitative approach can also be used.
A bank should recognize and consider the strong interactions between liquidity risk
and the other types of risk to which it is exposed. Various types of financial and operating risks,
including interest rate, credit, operational, legal and reputational risks, may influence a bank’s
liquidity profile. Liquidity risk often can arise from perceived or actual weaknesses, failures or
problems in the management of other risk types. A bank should identify events that could have
an impact on market and public perceptions about its soundness, particularly in wholesale
markets (Akhtar, 2007)
2.1.2 Liability Management Theory
According to will Kenton (2018) Liability management is the practice by banks of
maintaining a balance between the maturities of their assets and their liabilities in order to
maintain liquidity and to facilitate lending while also maintaining healthy balance sheets.
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Liability management plays an important role in the health of a bank's bottom line. During the
run-up to the 2007-08 financial crises, some banks mis-managed liabilities by relying on short-
maturity debt borrowed from other banks to fund long-maturity mortgages, a practice which
contributed to the failure of UK lender Northern Rock, according to a government report on the
crisis. Diamond & Rajan (2001) postulated that liability management theory focus in banks
issuing liabilities to meet liquidity needs. Liquidity and liability management are closely related.
One aspect of liquidity risk control is the buildup of a careful level of liquid assets. Another
aspect is the management of the Deposit taking institutions. Asset and liability management is
one of the most important risk management measures at a bank. It is one of the essential tools
for decision making that sets out to maximize stakeholder value. It is important to track the
external factors of the asset and liability management in the market to remain in the long term
and to prepare for negative effects. Banking sector analysis could be the instrument to measure
the sustainability of the country's financial sector (Goddard et al., 2009).
Asset liability management is the management of the total balance sheet dynamics and
it involves quantification of risks and conscious decision making with regard to asset liability
structure in order to maximize the interest earnings within the framework of perceived risks.
The primary objective of asset liability management is not to eliminate risk, but to manage it in
such a way that the volatility of net interest income is minimized in the short run and economic
value of the organization is protected in the long run. The liability management theory function
involves controlling the volatility of net income, net interest margin, capital adequacy, liquidity
risk and ensuring an acceptable balance between profitability growth and risk (Diamond &
Rajan, 2001). The proponents of this theory argue that, through proper Asset liability
Management, liquidity, profitability and solvency of banks can ensure that commercial banks
manage and reduce risks such as credit risk, liquidity risk, interest rate risk and currency risk.
The liabilities of a bank have different categories of varying cost, depending on the tenor and
maturity pattern. Similarly, these comprise different categories with varying yields depending
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on the maturity and risks factors. The main focus of this theory is the matching of liabilities and
assets (SBP, 2010).
2.1.3 Commercial Loan Theory of Liquidity
According to Adam Smith, commercial loan are short term loans advances to finance
salable goods on the way from producer to consumer are the most liquid
loans the bank can make. These are self-liquidating loans because the good being financed will
soon be sold. The loan finance a transaction and the transaction itself provide the borrower with
the fund to repay the bank. He further describes these loans as liquid because their purpose and
their collateral were liquid. The goods move quickly from the producer through the distributors
to the retail outlet and then are purchased by the ultimate cash paying consumer (Comptroller of
the Currency, 2001).
The liquidity of assets refers to the ease and certainty with which it can be turned into
cash. The liabilities of a bank are large in relation to its assets because it holds a small
proportion of its assets in cash. But its liabilities are payable on demand at a short notice.
Therefore, the bank must hold enough large amounts of its assets in the form of cash and liquid
assets for the purpose of profitability. If the bank keeps liquidity the uppermost, it will profits
below. On the other hands, if it ignores liquidity and aims at earning more, it will be disastrous
for it. Thus in managing its investment portfolio a bank must have a balance between the
objectives of liquidity and profitability. The balance must be achieved with a relatively high
degree of safety. This is because banks are subject to a number of restrictions that limit the size
of earning assets they can acquire (Brunnermeier & Yogo, 2009).
The proponents of this theory argue that the most liquid of assets is money in cash. The
next most liquid assets are deposits with the central bank, treasury bills and other short term
bills issues by the central and state governments and large firms, and call loans to other banks,
firms, dealers and brokers in government securities. The less liquid assets are the various types
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of loans to customers and investments in long term bonds and mortgages. Thus the principle
sources of liquidity of a bank are its borrowings from the other banks and the central bank and
from the sales of the assets. But the amount of liquidity which the bank can have depends on the
availability and cost of borrowings. If it can borrow large amounts at any time without difficulty
at a low cost (interest rate), it will hold very little liquid assets. But if it is uncertain to borrow
funds or the cost of borrowing is high, the bank will keep more liquid assets in its portfolio
(Crowe, 2009). A fully matched position is ideal a self-liquidating balance sheet but this is not
observable in real life, because of the conflicting objectives of a bank and its borrowers, nor is it
desirable due to its negative impact on profitability; a reasonable level of mismatch enhances
profitability (Crowe, 2009)
2.2 Determinants of Financial Performance
The financial performance of firms can be discovered by either internal factors or
external factors. Internal factors could be bank specific determinants while external factors are
Industry specific determinants and macroeconomic determinants. These indicators include:
capital adequacy, assets quality, operational efficiency, liquidity and external factors.
2.3. Liquidity
Liquidity of the firm is a key determinant of the firm’s financial performance.
Liquidity risk can be measured by two main methods: liquidity gap and liquidity ratios. The
liquidity gap is the difference between assets and liabilities at both present and future dates.
Liquidity is the amount of capital that is available for investment and spending. Capital includes
cash, credit and equity. Most of the capital is credit rather than cash. That's because the large
financial institutions that do most investments prefer using borrowed money (Jeanne &
Svensson, 2007).
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2.3.1 Asset Quality
The firm’s asset is another bank specific variable that affects the financial
performance of the firm. The bank asset includes among others current asset, credit portfolio,
fixed asset, and other investments. Often a growing asset (size) related to the age of the firm.
More often than not the loan of the financial institution is a key asset that generates the major
share of the banks income (Jeanne & Svensson, 2007).
Loan is the major asset of most financial institutions from which they generate
income. The quality of loan portfolio determines the financial performance of firm. The loan
portfolio quality has a significant impact on the financial performance of the firm. A review or
evaluation assessing the credit risk associated with a particular asset. These assets usually
require interest payments such as a loans and investment portfolios. How effective management
is in controlling and monitoring credit risk can also have an effect on the what kind of credit
rating is given (Kashyap, Rajan & Stein, 2002). According to Bernanke, Lown, and Friedman
(1991), non-implementing loans or lower asset quality, in economies that have bank based
financial systems which is also known as "credit crunch", may defer economic recovery by
decreasing operating profit margin or eroding capital base for new loans. For Klein (2013), non-
implementing loans will affect profitability of banks which is their main profit source and
ultimately financial stability of economy. Lower asset quality or non-implementing loans
reaching substantial amount may lead to bankruptcies and economic slowdown (Adhikary,
2006; Barr & Siems, 1994; Berger & DE Young, 1997; Demirguc-Kunt, 1989; Whalen, 1991).
Considering that one of the main reasons for the 2008 global crisis is lower quality
assets, which can be defined as toxic assets, measuring non-performing loans, analyzing their
effects well and producing required economic policies have significant importance for whole
economy as well as the banks themselves. Accordingly, especially within last 25 years,
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regulations are put in to effect by national and international institutions in order to determine
asset quality with regards to the importance of it.
In 1995 at the United States of America, United States Federal Reserve Board bring
“Standards for safety and soundness” into force which stipulates regular reporting obligation on
asset quality for board of directors of banks in order to evaluate the risks on deformation of asset
quality and to form asset quality supervision systems by financial institutions in order to define
problems that may arise with regards to asset quality (Eze & Ogbulu, 2016).
Seven(7) of the twenty-five (25) fundamental principles determined, by Basel
Committee on Banking Supervision (BCBS), for the effective supervision of banking system are
related with the asset quality of bank and loan risk management and this indicates that the asset
quality become an important aspect for supervision authorities of each country worldwide
(Abata, 2014). Hence, criteria which are started to be published by BCBS in 2000 titled Basel I
are legalized by European Union with the directives on capital adequacy. The mentioned criteria
are revised in accordance with the developments on financial markets and global financial crisis
started as of the end of the 2007. Lastly, Basel III criteria are put in effect in 2013.
2.3.1.1 Frequency of Loan Payments
Loan payments can be made on an installment basis (weekly, biweekly, monthly) or
in a lamp sum at the end the loan term, depending on the cash patterns of the borrower. For the
most part, interest and principal are paid together. However, some MFIs charge interest up front
(paid at the beginning of the loan term) and principal over the term of the loan, while others
collect interest periodically and the principal at eh end of the loan term. The frequency of the
loan payments depends on the needs of the client and the ability of the MFI to ensure repayment
(Ledger wood, 1999). According to Ledger wood (1999), the loan term is one of the most
important variables in microfinance. It refers to the period of time during which the entire loan
must be repaid. The loan term affects the repayment schedule, the revenue to the MFI, the
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financing costs for the client, and the ultimate suitability of the use of the loan. The closer and
organization matches’ loan terms to its client’s needs, the easier it is for the client to carry the
loan and the more likely that payments will be on time and in full.
2.3.1.2 Factors Affecting Loan Repayment
Theoretical models generally confirm that joint liability leads to higher repayment
performance due to more and effective screening, monitoring and enforcement among group
members. Most studies on this issue support this vies. Several authors have empirical
investigated the prediction of high repayment performance of Gramen Bank and Bancosol. They
focused on analyzing the evaluation of microenterprise loan repayment performance (Ledger
wood, 1999). According to Ledger wood (1999), states that there are several factors affecting
loan repayment which include Loan size (amount): is another factor that can affect loan
repayment performance. Godquine (2004) showed that loan size has negative sign and is
significant in affecting loan repayment. This negative sign is theoretically explained by the fact
that the loan size increases the gains associated with extant and exposit moral hazard.
The negative sign of loan size of the loan could also be linked to borrowers’ inability to
repay a large amount over a given period (usually one year). It could be that, for a given
duration large loans do not meet the borrowing needs and are not suited to the local economy.
The small holder loan repayment performance, evidence from the Nigerian microfinance
system, found out the loan size increases the probability of delinquency. It implies that loan size
is negatively related to loan repayment (Olomole, 2000). Follow up of loan is another factor of
loan repayment. Manager should maintain contact with borrowers and as far as possible should
keep watch full. Eye to ensure that loan used for the purpose for which they are guaranteed. Any
apparent deterioration on borrower’s position should be immediately investigated and reported
where appraiser. All outstanding loans should be reviewed by mangers at least once in a month
to ensure that repayment are being made regulatory slackness in this respect only leads to more
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difficulties later if borrowers find that the manager over look nonpayment of installments
(Godiqine, 2004).
According to Das et-al (2011) has examined the strategies to address the
challenges microfinance faced. The paper has dual on macro and micro challenges to the
delivery of microfinance. They found that challenges encountered by MFIs include the
inaccessibility of micro finance services to the poor, the capital inadequacy of MFIs, demand
and supply gap in provision of micro credit and micro saving. They also discovered that high
transaction cost, the non-availability of documentary evidence and problem of re-payment
tracking. They have categorized the problems into micro and macro challenges.
According to Mabhungu, et-al. (2011) has studies the factors used by MFIs in
grating micro loans to micro and small enterprises. The paper has found that MFIs consider
factors such as business formality, value of assets, business sector, operating period and
financial performance in granting micro loan. This paper has used micro and small enterprises
as the population of the study rather than using MFIs. Therefore, the paper has shown that the
method adopted by MFIs may not ensure financial inclusion in Zimbabwe because the first
criteria used in granting micro loan is formality while most of micro and small enterprises are
informal.
2.3.2 Operational Efficiency
Operational efficiency is one of the key internal factors that determine the financial
performance of the firm. It is represented by different financial ratios like total asset growth,
loan growth rate and earnings growth rate. It is one of the complexes subject to capture with
financial ratios. Moreover, operational efficiency in managing the operating expenses is another
dimension for management quality (Halling & Hayden, 2006). The performance of management
is often expressed qualitatively through subjective evaluation of management systems,
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organizational discipline, control systems, quality of staff, and others. Some financial ratios of
the financial statements act as a proxy for operational efficiency.
The capability of the management to deploy its resources efficiently, income
maximization, reducing operating costs can be measured by financial ratios. One of this ratios
used to measure management quality is operating profit to income ratio (Halling & Hayden,
2006). Operational efficiency is also referring to as the backbone of every industrial, financial,
commercial or institutional undertaking. In the various sectors of the economy the operational
efficiency is to be measured to achieve a strong long lasting and growth oriented results,
whether to be in a developed country or developing country.
The concept of operational efficiency which is of recent origin signifies the quality
of skill and degree of success attained in the management and performance of various activities
of an enterprise. Efficiency in job has been a matter of deep concern to many social scientists
hailing from as diversified disciplines as industrial, engineering, sociology and social
psychology. When there are any organized activities social or economic, all related parties seek
to achieve the object or objectives behind these activities with the minimum expenditure or cost,
in other words getting the maximum output from available resources that are what can be called
operational efficiency.
Profits are an index of economic progress; national income generated and rises in the
standard of living. Operational efficiency indicates that how business manages its income and
uses them to generate profits. Maximizing operational efficiency is different for each individual
organization, every enterprise uses different type of techniques to maximize the operational
efficiency and minimize inefficiencies that smother earnings or growth. In present scenario
every industry is being challenged to perform efficiently. Amid the national and international
competition an organization must aim for improving its product / service, quality, increase
productivity, greater responsiveness to change in market demand and to maintenance.
20
Excellence in operations in any business is a critical drive for success. The growth and progress
of a firm depend on the accomplishment of adequate results in their operations In order to
achieve good results, there is a basic need to accomplish two essential circumstances, i.e. to
optimum utilize the available funds for the formation of its consequences and for achievement
of consequences which fulfills the desires of the customers. (Potocan, 2006)
2.3.3 Capital Adequacy
Capital ratio has long been a valuable tool for assessing capital adequacy and should
capture the general safety and soundness of financial institutions. In most cases well capitalized
banks face lower expected costs of financial distress and such an advantage will then be
translated to financial performance of the firm. A firm that exhibits a strong capital base is able
to take advantage of profitable investments that can yield high returns in future (Holmstrom &
Tirole, 2000). Capital adequacy ratio is also one of the most significant current issues in banking
which evaluate the amount of a bank’s efficiency and stability.
The Basel Capital Accord is an international standard for the calculation of capital
adequacy ratios. The Accord recommends minimum capital adequacy ratios that banks should
meet. Using minimum capital adequacy ratios causes promotion in stability and efficiency of the
financial system by decreasing the likelihood of insolvency in banks. In the aftermath of the
financial crisis, there have been efforts by regulatory authorities to make banks stronger. To
accomplish this, governments across the developed world are enforcing strengthen their balance
sheets by increasing capital, and if they cannot raise more capital, they are told to decrease the
amount of risk assets (loans) on their books. (Abba, 2013).
In 2010, the world’s central bankers, represented collectively by the Bank of
International Settlements (BIS) handed down Basel III-a global regulatory framework that,
among other things, raise minimum capital requirements from 4% to at least 7% of a bank’s
risk-weighted assets (Hanke, 2013). Capital adequacy as a concept has been in existence prior to
21
the era of capital regulation in the banking industry and there exist several literatures on the
determination of capital adequacy ratio (CAR) as well as its determinants. The concept appeared
in the middle of the 1970’s because of the expansion of lending activities in banks without any
parallel increase in its capital, since capital ratio was measured by total capital divided by total
assets (Al-Sabbagh, 2004).
This led to the evolution of international debt crisis and the failure of one of the
biggest American banks, Franklin National Bank (Koehn & Santomero, 1980). These events
forced regulatory authorities to stress more control procedures and to improve new criteria and
methods to avoid bank’s insolvency (Al-Sabbagh, 2004). Capital adequacy generally affects all
entities. But as a term, it is most often used in discussing the position of firms in the financial
section of the economy, and precisely, whether firms have sufficient capital to cover the risks
that they confront (Abba, 2013). Capital adequacy ratio for banking organizations is an
important issue that has received a considerable attention in finance literature.
According to Al-Sabbagh (2004), capital adequacy is described as an indicator of
bank’s risk exposure. Banks risk is classified into different risk including: credit risk, market
risk, interest rate risk and exchange rate risk that are considered in the CAR calculation.
Therefore regulatory authorities used capital adequacy ratio as a significant indicator of “safety
and stability” for banks and depository institutions because they view capital as a guard or
cushion for absorbing losses (Abdel-Karim, 1964). This ratio is used to protect depositors and
promote the stability and efficiency of financial systems around the world. Two types of capital
are measured that is tier one capital, which can absorb losses without a bank being required to
cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so
provides a lesser degree of protection to depositors (Kashyap, Rajan & Stein, 2002).
22
2.3.4 Profitability
Profit is the ultimate goal of most firms. Profitability is the ability to make profit from
all business activities of an organization. It measures management efficiency in the use of
organizational resources in adding value to the business. Profitability may be regarded as a
relative term measurable in terms of profit and its relation with other elements that can directly
influence the profit. Profitability is the relationship of income to some balance sheet measure
which indicates the relative ability to earn income on assets. Irrespective of the fact that
profitability is an important aspect of business, it may be faced with some weakness such as
window dressing of the financial transactions and the use of different accounting principles. The
issue of firm’s profitability and performance efficiency been considered in a number of
theoretical and empirical researches of different kinds. However, return on assets (ROA) and
return on equity (ROE) have always been mentioned among the main indicators characterizing
firm’s profitability. Return on Assets (ROA) is a common ratio used to measure profitability of
a firm. It is a ratio of net income to the total assets (Khrawish, 2011).
It measures the ability of the firm’s management to generate income by utilizing
company assets at their disposal. In other words, it shows how efficiently the resources of the
company are used to generate 16 the income. It further indicates the efficiency of the
management of a company in generating net income from all the resources of the institution
Khrawish (2011). According to Wen (2010) states that a higher ROA shows that the company
efficiently uses its resources. Return on Equity (ROE) is a financial ratio that refers to how
much profit a company earned compared to the total amount of shareholder equity invested or
found on the balance sheet. Thus, the higher the ROE the better the company is in terms of
profit generation. It is further explained by Khrawish (2011) that ROE is the ratio of net income
after taxes to the total equity capital. It represents the rate of return earned on the funds invested
in the bank by its stockholders. ROE reflects how effectively a firm’s management is using
23
shareholders’ funds. Thus, it can be deduced from the above statement that the higher the ROE
the more effective the management in utilizing the shareholders capital.
As stated by Maverick (2016) that in order for a firm to prosper in the long-term, it
must be able to survive the short-term first. Liquidity is also a key component used in assessing
or to measure the financial health of a business, there are other financial metrics that will also be
used. Liquidity ratios are used for this purpose, including the current ratio and the quick ratio
which are the two most commonly used ratio. Liquidity not only helps make sure that an
individual or business always has a reliable supply of cash on hand, but it is also one of the
powerful tool when it comes to measuring the financial health of an entity of future investments
as well (Clementi, 2001). Investopedia.com (2016) also describes Liquidity as the degree to
which an asset or security can be quickly bought or sold in the market without affecting the
asset's price. It is also generally defined as the ability of a financial firm to meet its debt
obligations without incurring unacceptably large losses (Maness & Zietlow 2005)
When studying the financial health of firms there are four financial metrics to consider
and they are: liquidity ratios measure a firm’s ability to meet its maturing financial obligations.
The focus is on short-term solvency as if the firm were liquidated today at book value. The
current ratio (CR) is the most common liquidity measure and provides an indication of a firm’s
ability to pay short-term claims with short-term assets, financial leverage/solvency ratios
measure the relative amount of funds supplied by equity and debt holders. The focus is on the
long-term solvency of the firm. In general, the higher the amount of debt financing relative to
equity financing, the more leveraged the firm is and the greater the risk its owner faces,
efficiency ratios sometimes called asset management ratios, measure the efficiency with which a
firm manages its assets, and profitability ratios measure the firm’s efficiency in generating
profits. The most used liquidity ratios are: ratios concerning receivables, Inventory turnover,
working capital, Current ratio and Acid test ratio. Other ratios related to the liquidity of a firm
deal with the liquidity of its receivables and inventory. The ratios indicating the liquidity of a
24
firm's receivables are days' sales in receivables, Accounts receivable turnover, and Account
receivable turnover in days. (Chaplin et al. , 2000).
2.3.5 Financial Performance
Financial performance of any firm tells about the financial health of a firm helping
numerous lenders and stakeholders take an informed investment decision. It is actually
generated from the financial statement and composition of a firm which is the standard to assess
and monitor performance. Business senior managers use financial statements to create an
inclusive financial projection that will maximize shareholders wealth and minimize viable risks
that may advance. Financial Statements assess the financial position and performance of a firm.
These statements are made and produced for external stakeholders for example: shareholders,
government agencies and lenders (Rahaman, 2010). Financial performance determines how ably
a firm creates wealth for the owners. It can be ascertain through diverse financial metrics such as
profit after tax, return on asset, return on equity, earnings per share, and any market value ratio
that is generally accepted (Pandey, 1985).
2.3.6 Liquidity Risk and Financial Performance
The 2007–2009 financial crises highlighted the vulnerability of banks to liquidity
risk and the implications of banking business. During the crisis, the identification of proper risk
management for different business models was challenging (Altunbas et al. 2011). Moreover,
banks that exhibited traditional characteristics during the financial turmoil had a “survival
advantage” (Chiorazzo et al. 2018). This led to the need for specific regulation regarding both
the management and measurement of liquidity risk with a view to achieving greater stability in
the financial system. According to the definition of the Basel Committee on Banking
Supervision (1997), liquidity risk arises from the inability of a bank to accommodate decreases
in liabilities or to fund increases in assets. Meaning that, when a bank does not have sufficient
cash on hand, it cannot acquire enough funds to make payment on deposit or settle its
25
obligations and other commitment, either by proliferating liabilities or changing assets at a
reasonable cost thereby affecting profitability. Liquidity risk may cause a fire sale of the assets
of the bank which may spill over into an impairment of bank's capital base. If the financial
institutions face a situation in which it has to sell a large number of its illiquid assets to meet the
funding requirements perhaps to reduce the gearing in conventionality with the demand of
capital acceptability the fire sale risk may arise. This scenario may dictate to offer price discount
to attract buyers. This situation will have a knock on effect on the balance sheets of other
institutions as they will also be obliged to mark their assets to the fire sale price (Brunnermeier
& Yogo, 2009).
As propounded by Diamond and Rajan (2001) that a bank may refuse the lending, even
to a potential entrepreneur, if it feels that the liquidity need of the bank is quite high. This is an
opportunity loss for the bank. If a bank is unable to meet the requirements of demand deposits,
there can be a bank run. No bank invests all of its resources in the long‐term projects. Many of
the funding resources are invested in the short term liquid assets. This provides a buffer against
the liquidity shocks (Holmstrom and Tirole, 2000). Diamond and Rajan (2005) also emphasize
that a mismatch in depositors demand and production of resources forces a bank to generate the
resources at a higher cost. Liquidity has a greater impact on the tradable securities and
portfolios. Broadly, it refers to the loss emerging from liquidating a given position. It is essential
for a bank to be aware of its liquidity position from a marketing point of view. It helps to expand
its customer loans in case of attractive market opportunities (Falconer, 2001). A bank with
liquidity problems loses a number of business opportunities. This places a bank at a competitive
disadvantage, as a contrast to those of the competitors (Chaplin et al., 2000).
26
2.3.4 External Factors
The macroeconomic policy stability, Gross Domestic Product, Inflation, Interest
Rate and Political instability are also other macroeconomic variables that affect the financial
performance of financial institutions. For instance, the trend of GDP affects the demand for
banks asset (Goddard, Molyneux & Wilson, 2009). During the declining GDP growth the
demand for credit falls which in turn negatively affect the profitability of banks. On the
contrary, in a growing economy as expressed by positive GDP growth, the demand for credit is
high due to the nature of business cycle. During boom the demand for credit is high compared to
the recession (Halling & Hayden, 2006).
2.4 Empirical Review
The Macaulay (1988) investigated the adoption of liquidity risk management best
practices in the United States and reported that over 90% of the banks in that country have
adopted the best practices. Effective credit risk management has gained an increased focus in
recent years, largely due to the fact that inadequate credit risk policies are still the main source
of serious problems within the banking industry. The chief goal of an effective credit risk
management policy must be to maximize a bank’s risk adjusted rate of return by maintaining
credit exposure within acceptable limits. Moreover, banks need to manage credit risk in the
entire portfolio as well as the risk in individual credits transactions. In their study Tianwei &
Paul (2006) investigated on the effect of liquidity on financial performance in agricultural firms,
a descriptive study was conducted and 50 firms were studied.
Lidgerwood (1999) questioning the impact of the characteristics of borrowers, showed
that traditional prejudices against women, young borrowers or large families should not
influence the determination of repayment ability. This means the age may not have impact on
loan repayment performance. The lenders of these firms strived to improve their credit risk
management. Internal management was interested in understanding the financial impacts of
27
alternative strategic decisions. And policy makers often assessed the magnitude and
distributional effects of alternative policies on the future financial performance of farm business.
Barrios (2013) investigated the relationship between bank credit risk and financial performance
and the contribution of risky lending to lower bank profitability and liquidity. The sample data
that was collected comes from the Mergent Online database, which stores ownership, executive,
and financial information about public and private companies.
This study focuses on the concept of prudent lending by public state commercial banks,
insider ownership, and chief executive officer compensation and tenure, which are governance
related bank characteristics. Performance variables in analysis of covariance models include net
interest margin, return on assets, return on equity, and cash flow to assets. However, findings
were only statistically significant when the normality assumption was relaxed through the robust
regression method. Insider holdings and longer chief executive officer tenure were negatively
related to bank performance.
According to Arun (2005) one of the issue that has a significant concerned in MFIs
are the regulations that steer the conduct and activities of microfinance. According to his finding
on regulating and development the case of microfinance indicate that regulatory framework is
one of the issues that need to be addressed in order to have sustained MFIs. The paper argued
that MFIs need to be regulated by considering the nature and characteristics of the institutions
not using universal regulation of the financial system. Wanjohi (2013) assessed the current risk
management practices of the commercial banks and linked them with the banks’ financial
performance. Hence, the need for banks to practice prudent risks management in order to protect
the interests of investors.
28
2.5 Summary of the Review of Related Literature
From the literature review above there are lots of challenges bedeviling MFIs such as
problem of regulations, high interest rate charge by MFIs, inappropriate human resource, poor
attitude of loan re-payment by micro finance clients, inadequate of fund on the part of the MFIs,
lack of products diversification and factors that are usually consider in granting micro credits to
micro entrepreneurs. It is obvious that the aforementioned challenges are the protracted
problems of MFIs that need to be addressed for effective and sustained MFIs to be attained.
29
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
This chapter covers the research methodology that was used by the researcher in
achieving the objective of this study. In this chapter, the researcher discussed several elements,
namely research method, research design, population of the study, sample size and sampling
technique, method of data collection, data collection instrument, data collection procedures and
data analysis procedures.
3.1 Research Method
The researcher used a qualitative method of research in achieving the objective of this
study. According to Lincoln & Denzin (1998) Said that, in qualitative research, the objective
stance is obsolete, the researcher is the instrument and the subject becomes the participants who
made contribute to data interpretation and analysis. In addition to this, (leininger, 1994) says
that qualitative researchers defend the integrity of their work by different means,
trustworthiness, credibility, applicability and consistency are the evaluate criteria. Research
methodology will serve as the link between the research question formulated by the researcher
and the actual execution of the research (Creswell, 2009).
Traditionally, research methodologies are broadly classified into qualitative and
quantitative thereby creating a huge divide amongst researchers, especially in social sciences
(Onwuegbuzie and Leech, 2005). The difference between these two methods has been
prominent in many research methods publications (Howe, 1988; Neumann, 1997). For instance,
Myers (2009, p. 8) distinguishes that qualitative research is an in-depth study of social and
cultural phenomena and focuses on text whereas quantitative research investigates general
trends across population and focuses on numbers. Likewise, Miles and Huberman (1994)
30
maintain that qualitative research focuses on in-depth examination of research issues while
Harrison (2001) argues that quantitative design provides broad understanding of issues under
investigation.
3.2 Research Design
The researcher used a cross-sectional research design in obtaining information
pertaining to the Assessment of Loan Repayment of Client to Micro Finance Institutions. Cross
survey design basically, a type of descriptive research design which entails gathering of
information pertaining to a particular sample at once. The research design was preferred because
it allows generalization of the findings of the study at a particular parameter (Ngechu, 2004).
The method also enabled prudent comparison to be made under minimal interference
as the researcher has not direct control over the variables hence the most appropriate. This
enabled determining the exact strategies out in place by the companies and the impacts they
have on the organization and the influences these strategies have had on the performance.
According to Nworgu (2006), a research design is a plan or blue print which specifies how data
relating to a given problem should be collected and analyzed.
3.3 Population of the study
The population of the study was 240 which comprise both employees and clients of
Diaconia. The term Populations involves all elements, individuals, or units that meet the
selection criteria for a group to be studied, and from which a representative sample is taken for
detailed examination (Mugenda and Mugenda, 2003). It can also be define as the total collection
of elements about which we want to make reference.
31
3.4 Sample Size and Sampling Techniques
A sample size of 24 respondents which comprising both staffs and clients were
selected for the study. To carry out this study, to do an Assessment of Loan Repayment of
Client to Microfinance Institutions, out of the total of 240 employees and clients, a total of 12
staffs and 12 clients each were selected for a sample which represent 10% of the population. We
used simple random sampling (unbiased representation of a group). Because staffs and
borrowers are easily accessible as they are working at the same location.
According to Curry, J (1984) which states that, when a population is less than 100, the
researcher may use the entire population; when the population is more than 100, the researcher
may use 10% to get the sample size and when the population is more than 1000, the researcher
may use 5% to get the sample size. Neumann (2007) refers to sampling as the process of
selecting a sample or subset of the target population for the purposes of making observation or
statistical inferences about the study population. Latham (2007) on the other hand refers to
sampling as a method used to obtain research information where only a representative of the
population is selected. The sampling technique adopted in this study will be the purposive
judgmental sampling technique to select the sample size which gives a fair view of the
population under study. Tongco (2007) state that the purposive sampling technique , also called
judgment sampling, is the deliberate choice of an information due to the qualities the informant
possess
3.5 Research Instruments
The researcher used open ended (to formulate his own answer) self-formulated
interview questions as a data collection tool to gather data from sample respondents. The
interview was selected because it helps to gather data with minimum cost faster than any other
tool. The method of data collection which was employed to this study was qualitative method.
32
The data collection instrument helps the researcher to make the right connection between the
research and the respondents Tagoe (2009).
3.6 Data Collection Procedures
The research relied on purely primary data. Primary data is information obtained
direct from the field of study, and is yet to be published or documented (Miles, and Huberman,
1994). This was preferred to the secondary data as it is more oriented to the study and is less
likely to be outdated or biased. Anonymity of the researcher was also maintained which
encourages the respondents to be more candid in their Reponses. The primary data was gather
by the used of self-formulated interview questions
Interviews are considered the most appropriate due to them being not only time
saving but also enabling collection of a wide range of data. Construct validity and pretesting
were used in testing the reliability for the study. The Interview questions were administered to
the head of the credit department at the bank through a drop and pick method as well as face- to-
face interview. This method ensured the respondents have a sufficient time to answer the
questions. Follow ups were done in person, through emails, and calls to ensure that all the
questions are dully answer and collected. In order to obtain the information from the bank, the
researcher served the institution a letter informing the head of the entity the purpose of the
study. Data collection procedures are procedures that categorize data collection method into
primary and secondary methods. The primary method comprises participation, observation and
in-depth interviewing, focus group discussion and review of documents (Marshall & Roseman,
1995).
33
3.7 Data Analysis Procedures
After the data is collected, it was analyze through qualitative methods. Percentage and
tables was used for analysis of data which was collected through self-formulated interview
questions. The data analysis process constitutes meaningful information from the raw data
gathered. The completed questions were accessed for consistency and completeness. The data
from the open ended questions was interpreted and analyzed by use of Microsoft Excel through
the use of descriptive statistics which contain frequencies & percentages. These were chosen as
they enable easy interpretation of the collected data. The data was also presented in Charts and
tables through Microsoft excel. According to Mugenda (2003), data must be cleaned, coded and
properly analyzed in order to obtain a meaningful report.
34
CHAPTER FOUR
DATA INTEPRETATION, PRESENTATION AND ANALYSIS
4.0 Introduction
This chapter presents the interpretation, the presentation, and the analysis of data on the
Assessment of Loan Repayment of Clients to Micro Finance Institutions in Liberia.
4.1 Data Interpretations
Table1: Staff responsiveness rate
Staff response Frequency Percentage %
Responded 12 100
Not Responded 0 0
Total 12 100%
Source: Researcher Field Work Data (2020)
The population of this research was 240 which comprise staffs and clients of Diaconia. 24
respondents were selected. 12 out of the 24 respondents were staffs from Diaconia. The 12
questionnaire that were issued to staffs were fully filled and returned by respondents. This
translates to staff response rate of 100%
Figure 1: Staff responsiveness rate
Not Re-
sponded
0%
Responded
100%
35
Table2. Gender of the respondents
Gender Frequency Percentage
Male 8 67
Female 4 33
Total 12 100
The research seeks to determine the gender balance and disparity between the respondents. The
findings obtained indicate that 67% of the credit officers at Diaconia are male who does most of
the disbursement of funds to clients where as 33% of the staffs who worked in the credit
department are female and dose fewer disbursement as illustrated by table 2. This implies that
both male and female were involved in the participation of loan disbursement to client. But on
the average, more male were involved in the disbursement of loan to clients
Figure 2: Gender of the respondents
Female, 4
33%
Male, 8
67%
Source: Researcher Field Data (2020)
36
Table 3: Age Range of the respondents
Age Range Frequency Total Percentage
Male Female %
18-24 0 0 0 0
25-31 0 0 0 0
32-38 6 1 7 59
39-45 1 2 3 25
46 & above 1 1 2 16
Total 8 4 12 100
The research sought to find the ages of the respondents who were able to preside over the
disbursement of loan to client. As indicated in table 3, the highest numbers of respondents (7)
which consist of 59% (7) fall in the range of 32-38 years follow by 25% (3) which fall in the
range of 39-45 years as well. 16% (2) of the respondents fall in the range of 45 & above. This
implies that the majorities of the credit officer’s charge with the disbursement of loan to clients
was above the ages of 25 and were therefore able to make well and informed decisions as well
as provide valid and accurate information with regards to the study topic.
Figure 3: Age Range of the respondents
Ages
46 &
above
16%
25-31 18-24
years years
0% 0%
37
Table 4: Educational level of the respondents
Male Female %
High School 1 1 2 17
Bachelor 6 3 9 75
Master 0 0 0 0
Other 1 0 1 8
Total 8 4 12 100
As indicated by table 4 shown above, 75% (9) of the respondents had an
undergraduate/bachelor degree out of which 3 were female and constitute 25%. While Male
were 6 respondents which constitute 50% as well. Two (2) of the respondents were High School
graduate which constitute 17%. This shows that the majorities of the respondents that preside
over the disbursement of loan were bachelor degree holder and were knowledgeable with
respect to the research topic under discussion as well as the factors that interplayed in
disbursement of loan.
Figure 4: Educational Level of the Respondents
High Sch. Bachelor Master Other
8%
17%
75%
38
Table 5: Position of Staff/Respondents in Diaconia
Position Frequency Total Percentage
Male Female %
Credit Officer 6 3 9 75
Recovery Officer 1 1 2 17
Business 0 0 0 0
Head of credit Dept. 1 0 1 8
Total 8 4 12 100
This segment of the study seeks to determine the position held by each respondent in Diaconia.
It signifies that each of the respondents had knowledge of the entity policy and regulation with
respect to the process and procedures of disbursement of loan as well as the recovery and
monitoring of clients. The results found as illustrated by figure 5 shows that 75% of the
respondent were credit officers, 17% were recovery officers while 8% (1) of the respondents
was the head of the credit department. This indicates that the respondents were all
knowledgeable and well informed about the operations of Diaconia with regards to the strategies
employed to disbursed loan as well as the recovery of loan.
Figure 5: Position of staffs/ Respondents of Diaconia
High Sch. Bachelor Master Other
8%
17%
75%
39
Table 6: The Institution that determined interest rate
The Response Frequency Percent %
Institution
Male Female Total
that
Central Bank 2 1 3 25
determine MFIs 6 3 9 75
interest Commercial 0 0 0 0
Banks
rate Total 8 4 12 100%
Table 6 shows whether the respondents agree as to which institutions determine the interest rate
on the loan to client. Out of the 12 respondents, nine (9) respondents which represent 75% agree
that MFIs determine the interest rate on the loan given client while 4 of the respondents which
constitute 25% agree that Central Bank determines the interest rate on loan. This implies that,
most of the respondents who are male on the average did agree MFIs determine their own rate
on the loan to client which hampered the performance of loan repayment.
Figure 6: Institutions that determine interest rate
CBL
25%
MFIs, 75%
40
Table 7: The Interest rate MFIs offered client on the loan
Response Frequency Percentage %
Interest
rate MFIs Male Female Total
offered client 25% - 30% 1 2 3 25

interest rate
on the loan 36% -40% 7 2 9 75
interest rate
Total 8 4 12 100%
Table 7 points out whether the respondents agree that the interest rate offer on the loan by MFIs
affects the performance of loan repayment. Out of the 12 respondents, 9 respondents which
constitute 75% agree that MFIs offer between 36%- 40% interest rate on the loan given client.
Of the 9 respondents, 7 were male which represents 58% while 2 of the respondents were
female and constitute 17%. 3 out of the 12 respondents which represent 25% agree that MFIs
offer between 25% - 30% interest rate on the loan. This implies that, most of the respondents on
the average were male who agree that MFIs offer between 36% -40% interest on the loan given
to client which hampered the performance of loan repayment.
Figure 7: The interest rate MFIs offered client on the loan
3 Agree
25%
MFIs charge 25% -
30% interest rate
9 Agree
75% MFIs charge
36% -40% interest
rate
41
Table 8: Factors influencing high interest rate charge by MFIs on loan
Factors that Response Frequency Percentage %
influencing
Male Female Total
high interest
Recovery from 5 3 8 67
rate on loan
loss
by MFIs Some clients 2 1 3 25
will run away
Default by client 1 0 1 8
Total 8 4 12 100%
Table 8 depicts whether the respondents agree that the factors influencing high interest rate
charge by MFIs on loan were the recovery from loss, running away of client and default of
client. 8 out of the 12 respondents which constitute 67% agree that the recovery from loss was
one of the reason MFIs charge high interest. Of the 8 respondents, 5 were male which represents
42% while 3 of the respondents were female and constitute 25%. 25% (3) of the respondents
agree that the running away of some clients was one of the reason MFIs charge high interest
rate. This implies that, most of the respondent who was male on the average agree that because
MFIs want to recovery from loses incurred by some clients are the main reasons for charging
high interest rate on loan which affects the performance of loan repayment
Figure 8: Factors influencing high interest rate charge by MFIs on loan

1 agree
8%
default of client
3 Agree
25%
Some clients will
run away
8 Agree
67%
Recovery from loss
42
Table 9: False information’s client provide to Micro- Finance Institutions
false Response Frequency Percentage %
information’s
client provide Male Female Total
to Micro- Business that 6 4 10 83

doesn’t belong
Finance to them
Used of people 2 0 2 17
Institutions room or place
Total 8 4 12 100%
Table 9 shows whether the respondents agree that they provided false information to Micro-
Finance Institutions in order to obtain the loan. 10 out of the 12 respondents which constitute
83% agree that they used another client business pretending it is theirs in order to obtain the
loan from MFIs. Of the 10 respondents, 6 were male which represents 50% while the other 4
was female and constitute 34%. 2 of the respondents which represent 17% agree that they used
people room or place at to convinced credit officer to get the loan. This implies that, because of
the false information provided to Micro- Finance Institutions lead to over-financing of loan
which affects the performance of loan repayment.
Figure 9: False information’s client provide to Micro- Finance Institutions

2 Agree
17%
Used people room or place
10 Agree
83%
Used Business
that doesn’t be-
long to them
43
Table 10: The repayment period (time) in month given to client
The Response Frequency Percentage %
repayment Male Female Total
period (time) 6 months 6 2 8 67
in month 9 months 2 1 3 25
given to client 12 months 0 1 1 8
Total 8 4 12 100%
Table 10 shows whether the respondents agree that the repayment period was by installment and
in months. 67% (8) respondents agree that client make repayment semi- annually. 25% (3) of
the respondents agree client make repayment in 9 months. This signifies that clients make
repayment by installment in most cases semi- annually.
Figure 10: The repayment period (time) in month given to client

1 agree
8%
makes repayment annually
3 Agree
25% makes re-
payment in
9 months
8 Agree
67% makes re-
payment
semi- annually
44
Table 11: Factors that affects Loan Repayment performance
Factors Response Frequency Percentage %
that Male Female Total
affects Size of the Loan 1 0 1 8

Loan Level of Education 1 0 0 8
Repayment
Poor Assessment, 1 2 3 25
Performance Monitoring & Follow
up
High interest rate 5 2 7 59
Total 8 4 12 100%
Table 11 shows whether the respondents agree that there are factors that affect the repayment of
loan. 8 respondents which constitute 58% agree that high interest rate affect the performance of
loan repayment. 3 of the respondents which constitute 25% agree poor assessment, monitoring
and follow up on client business affects the performance of loan repayment of client to MFIs.
While 8% (1) respondent each agrees that the size of the loan and the level of education also
affect the performance of loan repayment respectively. This implies that, the higher the interest
the more likely client will default in the repayment of their loan which hampers the performance
loan repayment.
Figure 11: Factors that affects Loan Repayment performance

Strongly Disagree
25%
disagree
0%
Agree
0%
6Male, 3 Female
Strongly Agree
75%
45
Table 12: Repayment Period Sufficient for Client to make payment on Maturity
The Response Frequency Percentage %
Repayment Male Female Total

period
Sufficient 5 3 8 67
sufficient for
client to make Not Enough 3 1 4 33
full
Repayment
Total 8 4 12 100%
Table 12 shows that 67% of the respondents which constitute 8 respondents agree that the
repayment period given clients is sufficient for them to make full repayment on maturity
inclusive of the interest. 4 out of the 12 respondents which depict 33% also agree that the
repayment period was not enough for client to make full payment on maturity. This suggests
that, the time period allocated in month for clients to make full repayment of loan on maturity is
sufficient as agree by majorities.
Figure 12: Repayment Period Sufficient for Client to make payment on Maturity
4 Agree
33%
repayment period
was not enough
8 respondents
Agree
67%
repaymeny pe-
riod was sufficient
46
Table 13: Reasons for the delay of loan repayment
Reasons for Response Frequency Percentage %
the delay of Male Female Total
loan Business not 3 1 4 33

Moving
repayment Competition 4 2 6 50
fluctuating 1 1 2 17
prices
Total 8 4 12 100%
Table 13 indicates whether the respondent agree to some of the reasons given by clients that
cause delay in repayment. 33% which represents 4 respondents agree that business not moving
were some of the reasons client provided to MFIs. 50% (6) of the respondents agree that
competition in the market is another reason client provide for the delay in repayment of loan. Of
the 12 respondents, 2 (17%) says fluctuating prices were one reason for delay in repayment.
This implies that MFIs through their credit officers are aware of some of the reasons which
hampered loan repayment.
FIGURE 13: Reasons for the delay of loan repayment

competition Business not moving Fluctuting prices
2 respondent agree 17%
4 respondents
agree
33%
6 respondents
Agree
67%
47
Table 14: Implication default in loan repayment has on MFIs
Implication Response Frequency Percentage %
default in Male Female Total
loan Liquidity 5 3 8 67
shortfall
repayment MFIs will not 3 1 4 33
be able to
has on MFIs provide loan to
client
Total 8 4 12 100%
Table 14 depicts whether the respondents agree that default in loan repayment has serious
implication on both MFIs and client. 8 respondents which constitute 67% agree that liquidity
short is the results of default in loan repayment by client. Out of the 12 respondents 33% (4) of
the respondents agree that MFIs will not provide loan to client as a result of the default in loan
repayment which lead to liquidity shortfall. This implies that both MFIs as well as client are
affected as a result of continuous default in loan repayment which affects the ability of the
institutions to provide loan to the poorer segment of the society.
Figure 14: Implication default in loan repayment has on MFIs
4 respondents Agree
33%
MFIs will not provide
loan to client
8 respondents Agree
67%
liquidity shortfall
Table 15: Measures or Strategies Put in Place to Mitigate Default in Loan Repayment
48
Measures or Response Frequency Percentage%
Male Female Total
Strategies GOL should 3 3 6 50
constitute a
Put in Place regulatory body
to regulate
to Mitigate interest rate
thorough 3 1 4 33
Default in Loan Monitoring and
follow up
Repayment reliance should 2 0 2 17
be placed on the
information
provided by both
Clients & CBL in
assessing Client
Total 8 4 12 100%
Table 15 shows whether the respondents agree that, GOL should constitute a regulatory body to
regulate interest rate; reliance should be place on the information provided by both Clients &
CBL in assessing Client, and thorough Monitoring and follow up of Client Business should be
carry out are some of the Measures or Strategies Put in Place to Mitigate Default in Loan
Repayment. 6 out of the 12 respondents which constitute 50% agree that Government should
constitute a regulatory body to regulate interest rate charge on loan by MFIs. 17% (2)
respondents agree that reliance should not only be place on the information provided by Clients,
but on the information provided by CBL and the client in assessing Client. 4 respondents which
constitute 33% agree that MFIs through their credit officer should carry out thorough
Monitoring and follow up of Client Business before disbursing loan. This signifies that, MFIs
have identified the existing risk and to curtail such risk, they are putting corrective measures in
place to help mitigate the challenges faced in loan repayment.
49
Figure 15: Measures or Strategies Put in Place to Mitigate Default in Loan Repayment
GOL should constitute a regulatory body
Monitoring & Follow up carry out
Relianance be place on information provided by CBL & client
2 respondents Agree
17%
6 respondents
Agree, 50%
4 respondents
Agree 33%
Source: Researcher Field work Data (2020)
50
Table 16: Client/ Respondents Responsiveness Rate
Responses Frequency Percentage %
Male Female Total
Responded 2 5 7 58
Not Responded 0 0 5 42
Total 2 5 12 100%
The population of this research was 240 which include both staffs and clients of Diaconia
Microfinance Institutions in Liberia. 7 Out of the 12 respondents which constitute 58%
responded to the questionnaire as indicated by table 16. Five (5) of the respondents were female
while the other 2 were male. This translates to client responsiveness rate of 100%.
Figure 16: Clients/ Respondents Responsiveness Rate
Not Re-
sponded
5, 42%
Responded
7, 58%
51
Table 17: Gender of the Clients /Respondents
Gender Responses
Frequency Percentage %
Male 2 29
Female 5 71
Total 7 100%
The research seeks to determine the gender balance and disparity between the respondents. The
findings obtained indicates that 29% (2) of the respondents were male who does fewer credit of
funds from Diaconia where as 71% (5) of the respondents who does most of the credit or
borrowing of funds from Diaconia were female as illustrated by table 17. This implies that both
male and female were involved in the participation of taking of loan and that female on the
average takes more loans.
Figure 17: Gender of the Clients/ Respondents
Male
2, 29%
FeMale
5, 71%
52
Table 18: Age Range of the Respondents / Clients
%
Male Female
18-28 0 0 0 0
29-38 1 1 2 29
39-48 1 4 5 71
49 & above 0 0 0 0
Total 2 5 7 100%
The research sought to find the ages of the respondent who were able to received loan from
Diaconia. As indicated in table 18, the highest numbers of respondents which consist of 71% (5)
respondents fall in the age range of 39-48 years and 29-38 years respectively. This implies that
the majorities of the clients who toke loan were above the ages of 28 and were therefore able to
make well and informed decisions void of any influence as well as provide valid and accurate
information with regards to the study topic. In addition, majority of borrowers were between
medium ages adult and can serve microfinance for long period in the future.
Figure 18: Age Range of the Respondents /Clients
Ages
49 & above years
18-28 years 0%
0%
29-38 years
28.5% 39-48 years
71.4%
53
Table 19: Education Level of the respondents/Clients
Education Level Frequency Total Percentage
Male Female %
High School 1 1 2 29
Bachelor 1 3 4 57
Master 0 0 0 0
TVET 0 1 1 14
Total 2 5 7 100%
As indicated by table 19 shown above, 57% (4) of the respondents had an
undergraduate/bachelor degree out of which 3 were female and constitute 43% and the other one
(1) were male which constitute 14% as well. 2 of the respondents which constitute 29% were
High School graduate while TVET constitute 14%. This shows that the majority of the
respondents were knowledgeable with respect to the research topic under discussion as well as it
is an indicator of the fact that the participation of women in receipt of loan is much better than
men as most of them had an undergraduate degree. In addition to that, most of the clients are
female and they have knowledge about the business has most of them had degree.
Figure 19: Educational Level of the Respondents

High Sch. Bachelor TVET
High School,2 TVET, 1

29% 14%
Bachelor Degree,4
57%
54
Table 20: Marital Status of Respondents /Clients
Frequency Total Percentage
Male Female %
Single 1 1 2 29
Married 1 3 4 57
Divorced 0 1 1 14
Widowed 0 0 0 0
Total 2 5 7 100
This section of the study provide information with regards to the number of respondents that are
married, singled, divorced and widowed while doing their business. As indicated in table 20,
four (4) of the respondents are married which constitute 57%. Out of the four (4), three (3) were
female and one (1) were male. Two (2) of the respondent were single and constitute 29% while
14% were divorced which constitute one respondent. This implies that majority of the
respondents were married people and responsible and fall between the ages 39-48 years.
Figure 20: Marital Status of Respondents/ Client
widowed
0%
divorce
14%
married
57%
single
29%
55
Table 21: Years Clients/Respondents Been Doing Business
Years Frequency Percentage %
Male Female Total
0-5years 1 0 1 14
5-10years 1 2 3 43
10-15years 0 3 3 43
total 2 5 7 100%
This section of the study seeks to provide information with regards to the number of years client
or respondent been doing business. As indicated in table 21, three (3) of the respondents which
constitute 43% had been doing business between 5-10 years and 10-15 years respectively. While
the remaining 14% had been doing business between 0-5 years. This indicates that, the
majorities of the respondents or clients have had over 5 years plus of experience in during
business and therefore had sufficient knowledge of the business they were doing.
Figure 21: Years clients/ Respondents Been Doing Business
0- 5 Years 5-10 Years 10- 15 Years 15 years & above
0%
10-15 years
43%
5- 10 years 0-5 years

43% 14%
56
Table 22: Factors affecting loan repayment performance
Factors Response Frequency Percentage %
affecting Male Female Total
loan High Interest 1 4 5 72

rate
repayment Ebola Crisis 0 1 0 14
performance
Supervise, 1 0 1 14
Monitor &
Follow up
Total 2 5 7 100%
Table 22 depicts whether the respondents agree that the high interest rate charged on loan to
client; the Ebola crisis, & lack of thorough supervising, monitoring and follow up are factors
that affect the performance of loan repayment. Of the 7 respondents, 72% (5) of the respondents
agree that the interest rate charge on the loan to client by microfinance institutions is very high
and has hampered their ability to make repayment on maturity. 14% (1) of the respondent agree
that the lack of thorough supervising, monitoring and follow up is another factor that affects the
performance of loan repayment. 1 out of the 7 respondents agrees that the Ebola crisis hampered
their ability to make repayment. This signifies that majorities of the respondents or clients
agrees that the high interest rate charge on loan as well as the lack of thorough supervising,
monitoring & follow up are major factors that affect the performance of loan repayment to
MFIs.
Figure 22: Factors affecting loan repayment performance
Ebola crisi
14%
High interest rate

Lack of thorough su- 72%
pervision, monitoring,
& follow up
14%
57
Table 23: Some of the false information provided to MFIs in order to secure the loan
some of the Response Frequency Percentage %
false Male Female Total
information Used fellow 1 3 4 57

client business
provided as ours
Pretend to be 1 2 3 43
to MFIs in the owner of
house at times
order to secure
the loan
Total 2 5 7 100%
Table 23 indicates whether the respondents agree that they provide misleading information to
MFIs in order to secure the loan for their business which affects the performance of loan
repayment. 4 out of the 7 respondents which constitute 57% agree that they used their fellow
client business in pretend to secure the loan from MFIs. 43% (3) of the respondents also agree
that they pretend to be the owner of people house in order to secure the loan from the MFIs.
This implies that, on the average, the false information provided to MFIs resulted to over
financing of the borrowers which hampered the performance of loan repayment.
Figure 23: Some of the false information provided to MFIs in order to secure the loan
pretend to be house
owner
43% used fellow client
business
57%
58
Table 24: Make payment by installment
How did you Response Frequency Percentage %
make Male Female Total
repayment By installment 2 5 7 100
Total 2 5 7 100%
Table 24 shows whether the respondents agree that they make payment by installment. All 7
respondents, which constitute 100%, agree that they make payment by installment. This implies
that, MFIs provide client the opportunity to make payment by installment which does not affect
the performance of loan repayment.
Figure 24: Make payment by installment

make payment by installment
7
Agree
100%
59
Table 25: Purpose the loan money was used for
Purpose the Response Frequency Percentage %
loan Male Female Total
money was For the 0 1 1 14

business
used for To complete 1 1 2 29
my house
Part was used 1 3 4 57
for the
business and
part to by a car
Total 2 5 7 100%
Tables 25 depicts whether the respondents agree that the money was used purposely for the
business; to complete their house(s), and or part of the money was used for the business and part
to buy a car which hampered the performance of loan repayment. Four (4) respondents which
constitute 57% agree that the loan they received, part of the money was used for the business
and part to by a car which hampers the performance of loan repayment. 29% (2) respondents out
of the 7 respondents agree that they used the money received to purchase their house while 14%
also agree that the money was used directly for the business. This suggests that, more
respondents especially female agree that they used part of the money for the business and part
for buying of car which affects the performance loan repayment.
Figure 25: Purpose the loan money was used for

1 respondent agree that
the money was used for
the business directly 4 respondents Agree they
14% used the part of the money
for car and business
57%
2 respondents
agree that the
money was to
complete their
house
29%
60
Table 27: Agree that repayment was not made on Maturity
Repayment of Response Frequency Percentage %
loan was not Male Female Total
made on Business not 1 2 3 43

moving
maturity competition 1 0 1 14
Market forces 0 3 3 43
Total 2 5 7 100%
Table 27 depicts as to whether the respondents make full payment of the loan on maturity. 1 out
of the 7 respondents agrees that competition in the market affects repayment of loan on maturity
which represents 14%. 43% each of the respondents strongly agree respectively that business
not moving and market force affects the repayment of their loan on maturity which constitutes 3
respondents each. This implies that most of the respondent did not make repayment of their loan
on maturity. As a result, it affects the performance of loan repayment.
Figure 27: Agree that repayment was not made on Maturity

Business not moving competition Market forces
agree , 3 respondents that

business not moving affects 3 respondents agree that
their ability to make payment market forces hampers loan
on maturity repayment on maturity
43% 43%
Agree, 1
14%
61
4.2 Data Presentations
Table 1 shows the respondents’ responsive rate. 12 out of the 24 respondents were staffs from
Diaconia. The 12 questionnaire that were issued to staffs were fully filled and returned by
respondents which constitute 100%. This implies that all of the staffs including both male and
female response to the to the interview question;
Table 2 indicates the gender balance and disparity between the respondents. 67% of the credit
officers at Diaconia were male and 33% of the staffs who worked in the credit department were
female. This indicates that most of the creditor officers that disburse loan were male;
Table 3 depicts the ages of the respondents who were able to preside over the disbursement of
loan to client. The highest numbers of respondents (7) which consist of 59% (7) fall in the range
of 32-38 years follow by 25% (3) which fall in the range of 39-45 years. 16% (2) of the
respondents fall in the range of 45 & above;
Table 4 shows that 75% (9) of the respondents had an undergraduate/bachelor degree out of
which 3 were female and constitute 25%. 6 of the respondents were male which constitute 50%.
Two (2) of the respondents were High School graduate which constitute 17%. ;
Table 5 indicates the position held by each respondent in Diaconia. 75% of the respondents were
credit officers, 17% were recovery officers while 8% (1) of the respondents was the head of the
credit department;
Table 6 shows whether the respondents agree as to which institutions determine the interest rate
charged on the loan to client. Out of the 12 respondents, nine (9) respondents which represent
75% agree that MFIs determine the interest rate charge on the loan given client while 4 of the
respondents which constitute 25% agree that Central Bank determines the interest rate on loan.
This implies that, most of the respondents who are male on the average did agree that MFIs
62
determine their own rate on the loan to client which hampered the performance of loan
repayment;
Table 7 points out whether the respondents agree that the interest rate charged on the loan by
MFIs affects the performance of loan repayment. Out of the 12 respondents, 9 respondents
which constitute 75% agree that MFIs charged between 36%- 40% interest rate on the loan
given client. Of the 9 respondents, 7 were male which represents 58% while 2 of the
respondents were female and constitute 17%. 3 out of the 12 respondents which represent 25%
agree that MFIs offer between 25% - 30% interest rate on the loan. This implies that, most of the
respondents on the average were male who agree that MFIs offer between 36% -40% interest on
the loan given to client which hampered the performance of loan repayment;
Table 8 depicts whether the respondents agree that the factors influencing high interest rate
charged by MFIs on loan were the recovery from loss, running away of a client and default of
client. 8 out of the 12 respondents which constitute 67% agree that the recovery from loss was
one of the reason MFIs charge high interest. Of the 8 respondents, 5 were male which represents
42% while 3 of the respondents were female and constitute 25%. 25% (3) of the respondents
agree that the running away of some clients was one of the reason MFIs charge high interest
rate. This implies that, most of the respondent who was male on the average agree that because
MFIs want to recovery from loses incurred by some clients are the main reasons for charging
high interest rate on loan which affects the performance of loan repayment;
Table 9 shows whether the respondents agree that they provided false information to Micro-
Finance Institutions in order to obtain the loan. 10 out of the 12 respondents which constitute
83% agree that they used another client business pretending it is theirs in order to obtain the
loan from MFIs. Of the 10 respondents, 6 were male which represents 50% while the other 4
was female and constitute 34%. 2 of the respondents which represent 17% agree that they used
people room or place at to convinced credit officer to get the loan. This implies that, because of
63
the false information provided to Micro- Finance Institutions lead to over-financing of loan
which affects the performance of loan repayment;
Table 10 shows whether the respondents agree that the repayment period was by installment and
in months. 67% (8) respondents agree that client make repayment semi- annually. 25% (3) of
the respondents agree client make repayment in 9 months. This signifies that clients make
repayment by installment in most cases semi- annually;
Table 11 shows whether the respondents agree that there are factors that affect the repayment of
loan performance. 8 respondents which constitute 58% agree that high interest rate is one factor
that affects the performance of loan repayment. 3 of the respondents which constitute 25% agree
poor assessment, monitoring and follow up on client business affects the performance of loan
repayment of client to MFIs. While 8% (1) respondent each agrees that the size of the loan and
the level of education also affect the performance of loan repayment respectively. This implies
that, the higher the interest the more likely client will default in the repayment of their loan
which hampers the performance loan repayment;
Table 12 shows that 67% of the respondents which constitute 8 respondents agree that the
repayment period given clients is sufficient for them to make full repayment on maturity
inclusive of the interest. 4 out of the 12 respondents which depict 33% also agree that the
repayment period was not enough for client to make full payment on maturity. This suggest that,
the time period allocated in month for clients to make full repayment of loan on maturity is
sufficient as agree by majorities;
Table 13 indicates whether the respondent agree to some of the reasons given by clients that
cause delay in repayment. 33% which represents 4 respondents agree that business not moving
were some of the reasons client provided to MFIs. 50% (6) of the respondents agree that
competition in the market is another reason client provide for the delay in repayment of loan. Of
the 12 respondents, 2 (17%) says fluctuating prices were one reason for delay in repayment.
64
This implies that MFIs through their credit officers are aware of some of the reasons which
hampered loan repayment;
Table 14 depicts whether the respondents agree that default in loan repayment has serious
implication on both MFIs and client. 8 respondents which constitute 67% agree that liquidity
short is the results of default loan repayment by client. Out of the 12 respondents 33% (4) of the
respondents agree that MFIs will not provide loan to client as a result of the default in loan
repayment which lead to liquidity shortfall. This implies that both MFIs as well as client are
affected as a result of continuous default in loan repayment which affects the ability of the
institutions to provide loan to the poorer segment of society;
Table 15 shows whether the respondents agree that, GOL should constitute a regulatory body to
regulate interest rate; reliance should be place on the information provided by both Clients &
CBL in assessing Client, and thorough Monitoring and follow up of Client Business should be
carry out are some of the Measures or Strategies Put in Place to Mitigate Default in Loan
Repayment. 6 out of the 12 respondents which constitute 50% agree that Government should
constitute a regulatory body to regulate interest rate charge on loan by MFIs. 17% (2)
respondents agree that reliance should not only be place on the information provided by Clients,
but on the information provided by CBL and the client in assessing Client. 4 respondents which
constitute 33% agree that MFIs through their credit officer should carry out thorough
Monitoring and follow up of Client Business before disbursing loan. This signifies that, MFIs
have identified the existing risk and to curtail such risk, they are putting corrective measures in
place to help mitigate the challenges faced in loan repayment;
Table 16 points out that, 7 Out of the 12 respondents which constitute 58% responded to the
questionnaire. Five (5) of the respondents were female while the other 2 were male. This
translates to client responsiveness rate of 100%;
65
Table 17 indicates the gender balance and disparity between the respondents. 29% (2) of the
respondents were male who does fewer credit of funds from Diaconia where as 71% (5) of the
respondents who does most of the credit or borrowing of funds from Diaconia were female;
Table 18 highlights the highest numbers of respondents which consist of 71% (5) respondents
fall in the age range of 39-48 years and 29-38 years respectively;
Table 19 shows that, 57% (4) of the respondents had an undergraduate/bachelor degree out of
which 3 were female and constitute 43% and the other one (1) were male which constitute 14%
as well. 2 of the respondents which constitute 29% were High School graduate while TVET
constitute 14%;
Table 20 provides information about the number of respondents that are married, singled,
divorced and widowed while doing their business. Four (4) of the respondents are married
which constitute 57%. Out of the four (4), three (3) were female and one (1) were male. Two (2)
of the respondent were single and constitute 29% while 14% were divorced which constitute one
respondent;
Table 21 indicates that, three (3) of the respondents which constitute 43% had been doing
business between 5-10 years and 10-15 years respectively. While the remaining 14% had been
doing business between 0-5 years;
Table 22 depicts whether the respondents agree that the high interest rate charged on loan to
client; the Ebola crisis, & lack of thorough supervising, monitoring and follow up are factors
that affect the performance of loan repayment. Of the 7 respondents, 72% (5) of the respondents
agree that the interest rate charge on the loan to client by microfinance institutions is very high
and has hampered their ability to make repayment on maturity. 14% (1) of the respondent agree
that the lack of thorough supervising, monitoring and follow up is another factor that affects the
performance of loan repayment. 1 out of the 7 respondents agrees that the Ebola crisis hampered
66
their ability to make repayment. This signifies that majorities of the respondents or clients
agrees that the high interest rate charge on loan as well as the lack of thorough supervising,
monitoring & follow up are major factors that affect the performance of loan repayment to
MFIs.
Table 23 indicates whether the respondents agree that they provide misleading information to
MFIs in order to secure the loan for their business which affects the performance of loan
repayment. 4 out of the 7 respondents which constitute 57% agree that they used their fellow
client business in pretend to secure the loan from MFIs. 43% (3) of the respondents also agree
that they pretend to be the owner of people house in order to secure the loan from the MFIs.
This implies that, on the average, the false information provided to MFIs resulted to over
financing of the borrowers which hampered the performance of loan repayment;
Table 24 shows whether the respondents agree that they make payment by installment. All 7
respondents, which constitute 100%, agree that they make payment by installment. This implies
that, MFIs provide client the opportunity to make payment by installment which does not affect
the performance of loan repayment;
Tables 25 depicts whether the respondents agree that the money was used purposely for the
business; to complete their house(s), and or part of the money was used for the business and part
to buy a car which hampered the performance of loan repayment. Four (4) respondents which
constitute 57% agree that the loan they received, part of the money was used for the business
and part to by a car which hampers the performance of loan repayment. 29% (2) respondents out
of the 7 respondents agree that they used the money received to purchase their house while 14%
also agree that the money was used directly for the business. This suggests that, more
respondents especially female agree that they used part of the money for the business and part
for buying of car which affects the performance loan repayment;
67
Table 26 depicts as to whether the respondents make full payment of the loan on maturity. 1 out
of the 7 respondents agrees that competition in the market affects repayment of loan on maturity
which represents 14%. 43% each of the respondents strongly agree respectively that business
not moving and market force affects the repayment of their loan on maturity which constitutes 3
respondents each. This implies that most of the respondent did not make repayment of their loan
on maturity. As a result, it affects the performance of loan repayment.
4.3 Data Analysis
The study sought to determine the default in loan repayment of client to Microfinance
Institutions in Liberia. It was determined that Microfinance Institutions has been faced with
challenges of loan repayment which affects their ability as institutions to perform financially.
The researcher cross examine the information provided by both staffs and clients of Diaconia to
ensure whether there was similarity and difference in the findings. The findings gather from
both client and staff shows a positive relationship with respect to their similarity. The findings
shows that both clients and respondents agree that high interest rate, false information provided
by client, lack of thorough monitoring and follow up on client business affects the performance
of loan repayment et. If the borrowers are not supervising regularly then their motivation to
repay the loan is decreased.
The findings also show that MFIs will continue to experience default in loan
repayment until they became to charge a moderate interest rate and allow CBL determine the
interest rate charge on various loan. However , the high interest rate charged by MFIs is as a of
they want to recover from loss incurred as a result of default of client, some client running
away with loan they gave them etc. Kelly (2005) found that defaulters’ percentage in
microfinance institutions is increasing day by day. More delinquencies in personal loan and
microfinance etc. Increasing defaults in the repayment of loans may lead to very serious
implications. For instance, it discourages the financial institutions to refinance the defaulting
members, which put the defaulters once again into vicious circle of low productivity. Therefore,
68
a rough investigation of the various aspects of loan defaults, source of credit, purpose of the
loan, form of the loan, and condition of loan provision are of utmost importance for both policy
makers and the lending institutions. Kelly (2005
The study found out MFIs have adopted the following strategies: creating a regulatory
body to regulate interest rate, thorough monitoring & follow up of client business etc. this
therefore confirm this strategies will prove to have a positive impact on the performance of
repayment of loan. According to Arun (2005) one of the issue that has a significant concerned in
MFIs are the regulations that steer the conduct and activities of microfinance. According to his
finding on regulating and development the case of microfinance indicate that regulatory
framework is one of the issues that need to be addressed in order to have sustained MFIs. The
paper argued that MFIs need to be regulated by considering the nature and characteristics of the
institutions not using universal regulation of the financial system.
According to Das et-al (2011), the challenges of MFIs include the inaccessibility of
micro finance services to the poor, the capital inadequacy of MFIs, education level, provision of
micro credit and micro saving, high interest rate, non-availability of documentary evidence, size
of the loan as well as problem of re-payment loan. Nasir (2013) like Das et-al (2011) have
investigated the challenges that face MFIs. Among the challenges are lack of products
diversification, low outreach or follow up, high interest rate, late payment or delay in payment,
inadequate funding, and neglecting urban poor and high cost of transaction. Similarly, the
studies conducted thus point out high interest rate, lack of thorough monitor and follow up,
default in repayment, size of the loan etc.
According Nawai and Shariff, (2013) have identified that the major challenge as
regard to the activities of MFIs is loan re-payment. They went ahead to pinpoint the remote
causes of loan re-payment problem. The paper shown that among the causes of poor loan re-
payment are borrowers` attitude toward their loan, amount received, business experience and
69
family background. Indeed the paper indicates that delay or late payment is the major havoc in
the operation of MFIs. However, client with high sense of integrity should be considered when
granting micro credits. According to Ikeanyibe, (2010) the problems of MFIs have to do with
human resources while Arun (2005) stated that the major problem of MFIs is related to
regulations of the institutions (MFIs).
The above discussion has showcases the factors or challenges experienced by MFIs.
Similarly, the studies conducted have also established a positive relationship with the review of
related literature. The studies has pinpointed the major problems of MFIs which consist of high
interest rate, lack of accurate information by microfinance clients, lack of thorough monitoring
& follow up , size of the loan, regulatory framework not determining interest rate, loan re-
payment problems, However, the paper has provides some of the measures to address the
challenges.
70
CHAPTER FIVE:
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.0 Introduction
This chapter presents a summary of the key findings of the study as well as the
conclusions and recommendations made based on the findings. The chapter also presents the
areas that were pointed out during study for further research.
5.1 Summary
The study was undertaken with the aim of assessing loan repayment of client to
Micro Finance Institutions in Liberia with a case study of Diaconia (2012-2017). Primary data
was used in the analysis to study the variables. 5years data was collected from the publications
of the association of microfinance institutions in Liberia, the Central Bank of Liberia as well
from other statistical publications from (CBL). To address the aim of the study, inferential
statistics were conducted where frequency and percentage was used to study the association.
The study used a qualitative research method as well as a cross-sectional research design. The
population of the study was 240 of which 120 were employees of Diaconia and the rest were
clients of Diaconia as well. The study used a purposive and judgmental sampling technique to
select the size of 24 respondents of which 12 constitute clients of Diaconia and the rest were
employees of Diaconia. Two separate questionnaires were developed, one for staff and the other
for client.
From the analysis, the study found out that micro-Finance Institutions had
experienced or been faced with serious challenges with regards to default in repayment of loan
by client to MFIs which were cause by the following factors: size of the loan, high interest rate,
low supervision, monitoring and outreach of client business, educational level, client not paying
on time as well as the Ebola crisis which affected loan repayment as well which were supported
71
by other studies as well. As indicated Table 11, 8 respondents which constitute 59% agree that
high interest rate affects the performance of loan repayment. 3 of the respondents which
constitute 25% agree poor assessment, monitoring and follow up on client business affects the
performance of loan repayment of client to MFIs. While 8% (1) respondent each agrees that the
size of the loan and the level of education also affect the performance of loan repayment
respectively. This implies that, the higher the interest the more likely client will default in the
repayment of their loan which hampers the performance loan repayment.
The study also found out that MFIs charged high interest rate on the loan because
most client will not make repayment in time, some of them will end up running away with the
money they borrow as a result MFIs will to recovery from those loses because they write off on
their book. As shown by table 8, 8 out of the 12 respondents which constitute 67% agree that the
recovery from loss was one of the reason MFIs charge high interest. Of the 8 respondents, 5
were male which represents 42% while 3 of the respondents were female and constitute 25%.
25% (3) of the respondents agree that the running away of some clients was one of the reason
MFIs charge high interest rate. This implies that, most of the respondent who was male on the
average agree that because MFIs want to recovery from loses incurred by some clients are the
main reasons for charging high interest rate on loan which affects the performance of loan
repayment;
The study also highlights that in most instances client don’t used all the money borrow
for the purpose of the business. They normally used portion of the money for the purpose and
the other for either buying of a car or completing of their house. As indicated by Tables 25 Four
(4) respondents which constitute 57% agree that the loan they received, part of the money was
used for the business and part to by a car which hampers the performance of loan repayment.
29% (2) respondents out of the 7 respondents agree that they used the money received to
purchase their house while 14% also agree that the money was used directly for the business.
72
This suggests that, more respondents especially female agree that they used part of the money
for the business and part for buying of car which affects the performance loan repayment.
Addition to this, the study found that MFIs will not be able to fund the poorer
segment of the society money in order to carry out their because of liquidity shortfall which is
the implication both MFIs and clients will have to face. As indicated by Table 14, 67% agree
that liquidity short is the results of default loan in repayment by client. Out of the 12
respondents 33% (4) of the respondents agree that MFIs will not provide loan to client as a
result of the default in loan repayment which lead to liquidity shortfall. This implies that both
MFIs as well as client are affected as a result of continuous default in loan repayment which
affects the ability of the institutions to provide loan to the poorer segment of society.
The study also found out that MFIs have identify the risk or challenges faced with
regards to repayment of loan, and they have are putting in place strategies to mitigate the already
existing and emerging risk or challenges. As indicated by table 15, 6 out of the 12 respondents
which constitute 50% agree that Government should constitute a regulatory body to regulate
interest rate charge on loan by MFIs. 17% (2) respondents agree that reliance should not only be
place on the information provided by Clients, but on the information provided by CBL and the
client in assessing Client. 4 respondents which constitute 33% agree that MFIs through their
credit officer should carry out thorough Monitoring and follow up of Client Business before
disbursing loan. This signifies that, MFIs have identified the existing risk and to curtail such
risk, they are putting corrective measures in place to help mitigate the challenges faced in loan
repayment.
73
5.2 Conclusion
Loan repayment is the act of paying back money in maturity previously borrowed from
a lender. Repayment usually takes the form of periodic payment that normally includes part
principal plus interest in each payment. The beginnings of microfinance movement are most
closely associated with the economist Mohammed Yunus, who in the early 1970’s was a
professor in Bangladesh. In the midst of a country-wide famine, he began making small loans to
poor families in neighboring villages in an effort to break their cycle of poverty. Microfinance
has the ability to raise the living conditions of the poorer segments of the population, but the
performance of most of the Micro-Finance Institutions in the repayment of loan has been
disappointing. Based upon the data collected and analyzed using frequency, percentage, tables
and charts, the following conclusion were drawn from the study:
The study concludes with the review of other related literature that that the size of the loan,
high interest rate, lack of monitoring, supervision and follow up on client business are key
factors that hampered the performance of repayment of loan of client to micro-finance
institutions;
That MFIs charged high interest on these loan because they want to recover from the losses
incurred by some client in the default of payment and the running away of the institutions
money;
That client provide misleading information to MFIs in order to secure the loan for their business
which result into over financing and as a result hampers the performance of loan repayment;
The study further concludes that MFIs are putting in place strategies and measures to mitigate
the already existing and emerging challenges facing the institutions,
However, while it is true that MFIs have been performing poorly in terms of loan repayment,
they need to come up with a moderate interest charge on loan.
74
5.3 Recommendation
With the data collected and information gathered during the study, the following
recommendations are for considerations:
1. training of staffs as well as organizing a section for clients to create awareness with
respect to the implication it will have on them as well as the entity if they don’t repay
their loan;
2. MFIs should charge moderate interest rate as to enable client commit themselves to
repayment of their loan on maturity;
3. participation of government with regards to setting the stage or standard for the
determination of interest rate charge on loan to client;
4. MFIs should ensure that thorough supervision, monitoring and follow up of client
business are done constantly;
5. Government should set up a regulatory body to regulate interest rate charge on loan
given to client by MFIs, and
6. MFIs should set out criteria on how to give out the loan with respect to the age,
experience as well as the educational level to ensure client are fully able to manage
said loan.
75
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CHAPTER ONE

1.1 Background of the Study

peace prize (Perkins, 2008).

agencies as well as non-governmental organizations with sole aim of ensuring financial

poor or low income individuals. (Kurfi, 2008).

Microfinance Institutions in Liberia

Act is to regulate the establishment, operations, business and conduct of microfinance

monumental proliferation in non-implementing loans in deposit taking microfinance institutions

demands no supplementary fund to go after those investments (CBL, 2018).

of the bank as well as the progress of the economy. (Wondimagengehu, 2012).

liquidity and financial performance of the firm.

1.4 Purpose and Objective of the Study

identified and were considered for the purpose of this study:

1. To identify the factors or challenges MFIs facing with loan repayments

2. To determine the implication of defaults of loan repayments had on micro-Finance

3. To identify ways to mitigate the defaults of loan repayments

1. What are the factors or challenges affecting loan repayments?

2. What implications defaults of loan repayments had on MFIs?

3. What are the ways to mitigate the defaults of loan repayments?

1.6 Scope and Delimitation of the Study

aimed to do an Assessment of Loan Repayment of Client to Microfinance Institution In Liberia

1.7 Limitation of the Study

The researcher encountered numerous challenges which restricted its acceptable

have to locate them.

cost attach to printing of the work.

1.8 Definitions of key terms

Network of microfinance Institutions in Liberia- a conglomeration of MFIs coming together

for the betterment and well-being of its development

the financial sector in Liberia.

with the aim of earning profit.

low income clients offered by different type of providers.

to pay corporate income tax

Return on Equity-is a measure of a company’s annual return or is a measure of how well a

company’s uses investment to generate earnings

may also refer to a specific currency or commodity.

has for its customers is called as product mix.

payment of principal or interest for some time especial after 90 days.

cannot meet its short- term obligation

Loan repayment- It is an arrangement of in which a lender gives money or property to a

interest at some future time

the loan within due date.

1.9 Organization of the study

REVIEW OF RELATED LITERATURE

the review of related literature.

2.1 Theoretical Framework

2.1.1 Liquidity Risk Theory

According to a research conducted by NJERI ( as cited in Halling & Hayden,2006)

the eight risk face by these institutions is credit risk.

in the extension of commitments and guarantees, and the settlement of transactions

considerably shorter maturities, or refuse to extend financing at all. Moreover, dependency on

markets may dry up in times of stress (Perera et al., 2006).

In the study conducted by Nasir (2013) “contemporary issues and challenges of

approach while quantitative approach can also be used.

markets (Akhtar, 2007)

2.1.2 Liability Management Theory

According to will Kenton (2018) Liability management is the practice by banks of

the sustainability of the country's financial sector (Goddard et al., 2009).

assets (SBP, 2010).

2.1.3 Commercial Loan Theory of Liquidity