The main objective of the study is to identify the borrower characteristics that discriminate them into defaulters and non- defaulters and examine the determinants of loan repayment and their credit worthiness in Microfinance institutions in Vavuniya district in Sri Lanka. In line with above general objective, this study has the following specific objectives:
To identify the borrower characters those classify them into defaulters and non-defaulters in the study area.
To evaluate the impact of major demographic characters such as age, gender, levels of education, civil status and family members of the borrowers that impact on their repayment performance and credit worthiness.
To investigate how the farming characters like income, farm size, ownership of land, farming experience and availability of non-farm income as well as farmers' attributes such as purposes of loan, crop failure, weather conditions and knowledge about loans affect loan repayment and discriminate the borrowers into two groups in the study area.
Financial institutions and banks have major role in financial sector as well as rural sector of an economy in terms of providing loans to the rural community in developing countries like Sri Lanka. The borrowers especially, farmers are able to get the loans from the microfinance institutions to improve their living standard through agricultural activities and generate their income. Even the borrowers have chances to receive the loans, the microfinance institutions and banks are facing the problems to recover the loans from the borrowers. Thus, default rate among the borrowers has been increasing over time which is the difficult task to manage the banks and financial institutions. There are a number of many factors particularly demographic and farming characters that affect the loan repayment rates. There has not been any empirical research conducted regarding to repayment performance among the borrowers who get the loans from SANASA Thrift, Credit and Cooperative Society (TCCS) banks in Vavuniya district. Therefore, this study tries to provide the relevant information for a better understanding on the determinants of loan repayment performance of the borrowers and the information will be useful for policy makers, other lending institutions and stakeholders for their future decision making on granting the loans for their clients.
Table of Contents
1.0 Introduction
1.1 Overview of SANASA Thrift, Credit and Cooperative Society (TCCS) banks
1.2 Literature Review
1.2.1 Repayment performance and its determinants: Binary logistic model
1.2.2 Repayment performance and its determinants: Linear discriminant function model
1.3 Research questions
1.4 Objectives of the study
1.5 Significance of the study
1.6 Methodology
1.6.1 Measurement of the variables
1.6.2 Analytical tools
1.7 Results and discussion
1.8 Conclusions and recommendations
Research Objectives and Focus
This study aims to identify the borrower characteristics that discriminate between defaulters and non-defaulters within microfinance institutions in the Vavuniya district of Sri Lanka, while examining the determinants of their repayment performance and creditworthiness.
- Identification of borrower characteristics that differentiate defaulters from non-defaulters.
- Evaluation of demographic impacts (age, gender, education, etc.) on repayment behavior.
- Investigation of farming-related factors such as income, farm size, and farming experience.
- Analysis of farmers' specific attributes including loan purposes, crop failure, and weather conditions.
- Application of discriminant analysis and binary logistic models to determine repayment probability.
Excerpt from the Book
1.0 Introduction
The Sri Lankan economy mainly determines on agricultural sector includes plantation and domestic sectors where those sectors play a major role in rural development and livelihood of the people in the country. Agricultural sector in Sri Lanka contributes nearly 7% to the Gross Domestic Product of the country as well as it provides nearly 32.6% of the employment opportunities to the labour force in the economy. (Central Bank Annual Report, 2017). Rural development of a country mainly depends on the growth of agricultural sector and the government or micro financial institutions have more concern on the development of agricultural sector by many ways. Specially, financial supports are necessary for farmers to invest in their farming which help them to improve their living standard. Thus, agricultural loans are the one of the source to improve and enhance living standard and their life style.
Today, microfinance is an accepted and a highly recognized approach for providing financial needs of the poor across the world. Poor farmers, micro enterprise operators, artisans and other poor groups face numerous challenges when obtaining credit for their financial requirements from other formal and informal sources and this scenario has led to evolving of this type of approach and operational strategies that fall in line with that. (Chandrasiri, J.K.M.D. & Bamunuarachchi, B.A.D.S, 2016). There are many Government institutions and institutional arrangements have been experimented to provide the loans especially to smallholder farmers for agricultural purposes.
Summary of Chapters
1.0 Introduction: Provides an overview of the agricultural sector in Sri Lanka and the critical role of microfinance in supporting smallholder farmers, while highlighting the challenges of loan repayment.
1.1 Overview of SANASA Thrift, Credit and Cooperative Society (TCCS) banks: Describes the institutional background, objectives, and lending structure of the SANASA TCCS banks in the Vavuniya district.
1.2 Literature Review: Synthesizes previous academic research regarding repayment performance determinants using binary logistic and linear discriminant models.
1.3 Research questions: Outlines the core investigative questions driving the research regarding borrower characteristics and repayment behavior.
1.4 Objectives of the study: Defines the general and specific research goals related to identifying determinants of default and repayment.
1.5 Significance of the study: Explains the importance of the research for policy makers and financial institutions in managing loan recovery in the rural agricultural sector.
1.6 Methodology: Details the sampling techniques, data collection methods, and the statistical tools (t-tests, discriminant analysis, logistic regression) used for the study.
1.7 Results and discussion: Presents the empirical findings and statistical analysis of borrower data, including the performance of the various mathematical models.
1.8 Conclusions and recommendations: Summarizes the study's conclusions and offers practical suggestions for microfinance institutions to improve loan recovery rates.
Keywords
Repayment performance, Microfinance, Smallholder farmers, Vavuniya district, Discriminant analysis, Binary logistic model, Loan default, Demographic characters, Farming experience, Creditworthiness, SANASA TCCS, Rural development, Agricultural loans, Statistical analysis, Borrower classification
Frequently Asked Questions
What is the core focus of this research study?
The study investigates the factors influencing loan repayment behavior among smallholder farmers in the Vavuniya district of Sri Lanka, specifically those borrowing from the SANASA Thrift, Credit and Cooperative Society.
What are the primary themes examined in this work?
The work covers demographic characteristics, farming-specific attributes, and individual farmer traits as determinants for categorizing borrowers into defaulters and non-defaulters.
What is the central research question?
The research seeks to identify which major borrower characteristics and farming variables can significantly predict or categorize clients into default versus non-default groups.
Which scientific methods are applied in the analysis?
The study employs independent sample t-tests, chi-square tests, linear discriminant analysis (using both direct and stepwise methods), and binary logistic regression models.
What topics are discussed in the main body?
The main body focuses on the measurement of variables, the setup of discriminant and logistic models, the analysis of survey data, and the evaluation of the resulting probability metrics for default prediction.
Which keywords define this publication?
Key terms include Repayment performance, Microfinance, Smallholder farmers, Discriminant analysis, and Binary logistic model.
How does farming experience affect the repayment probability of the farmers?
The study concludes that longer farming experience is positively associated with better repayment performance, as it likely correlates with increased knowledge and skill in managing agricultural yields.
What specific demographic factors were found to be most influential?
Age and education level were found to be significant, with older and more educated farmers showing a higher probability of non-defaulting behavior.
How is the threshold for classifying a defaulter determined in the model?
The threshold is determined by calculating the cut-off score halfway between the group centroids of the defaulters and non-defaulters produced by the discriminant analysis.
- Quote paper
- Aruppillai Thayaparan (Author), B. Sivatharshika (Author), 2019, Borrowers' characteristics and their impact on repayment behaviour in Sri Lanka. An application of discriminant and logistic models, Munich, GRIN Verlag, https://www.grin.com/document/511724
