Microfinance Wolves Strike on Multiple Borrowing and Loan Repayment

Studies on multiple loans and their effect on repayment of loans between clients and the sustainability of microfinance providers show conflicting results. Some studies indicate that multiple indebtedness has a positive effect on loan repayment and Micro Finance Institutions(MFIs) sustainability, while others show that it leads to over-indebtedness and, consequently, non-compliance with the loan. Therefore, this study analyzed the incidence of multiple loans, the reasons for multiple loans and the effects of multiple loans on loan repayment in Batticaloa District. The target population comprised a total of 22,645 loan borrowers out of which a sample of 100 was picked using simple random sampling, which enable every member of the population have an equal and independent chance of being selected as respondents and also simplest, most convenient and bias free selection method. The data was collected by use of self-developed questionnaire issued to the microcredit borrowers, in depth interviews had with microcredit group leaders and MFIs’ Manager and staff. Results showed that prevalence of multiple borrowing at Batticaloa District was very high. Over 85% of the 100 microfinance clients had at least two loans from different MFIs at the same time. In addition, about 47% also borrowed from individual lenders. Major reasons for multiple borrowing were loan recycling, insufficient loans from MFIs, and family obligations. Over 65% of the respondents had problems in loan repayment because of multiple pending loans. Researcher found that age group and number of dependents of the respondent significantly influenced the number of loan contracts.