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Results of the Study on Multiple Lending and the Challenges Faced by Banks
 

Results of the Study on Multiple Lending and the Challenges Faced by Banks

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Mr. Ronald Chua of the Asian Institute of Managment shares the findings of the Study on Multiple Lending and the Challenges Faced by Banks during the 2012 RBAP-MABS National Roundtable Conference on ...

Mr. Ronald Chua of the Asian Institute of Managment shares the findings of the Study on Multiple Lending and the Challenges Faced by Banks during the 2012 RBAP-MABS National Roundtable Conference on June 8.

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    Results of the Study on Multiple Lending and the Challenges Faced by Banks Results of the Study on Multiple Lending and the Challenges Faced by Banks Presentation Transcript

    • Session  3:   Results  of  the  Study  on  Mul0ple  Lending  and   the  Challenges  Faced  by  Banks   Ron Chua Asian Institute of Management 2012 RBAP-MABS National Roundtable Conference June 7-8, 2012 Hyatt Hotel & Manila  
    • Mul-ple  Borrowing    among  Microfinance  Clients   Results  from  an  Area  Study   Prepared  by    Ronald  T.  Chua  and  Erwin  R.  Tiongson   April  18,  2012    
    • This  is  a  heroic  a?empt  at  a  summary  SUMMARY  
    • Caveat  •  This  is  not  naConally  representaCve  •  This  is  from  cross-­‐secConal  data  that  mask  the   changes  over  Cme  •  The  data  are  subject  to  error  •  Data  are  from  mulCple  sources  and  not  fully   consistent  
    • Summary  and  Concluding  ObservaCons  •  Mul-ple  borrowing  exists,  it  exists  in  various   forms,  and  is  not  small.  Though  the  data  sources   cannot  be  fully  consolidated,  they  suggest  the   following  incidence,  along  several  dimensions:   o  5  percent  if  mulCple  borrowing  means  taking  out   mulCple  loans  from  the  same  MFI   o  14  percent  if  mulCple  borrowing  means  borrowing   from  several  MFIs,  though  there  is  substanCal   variaCon  across  MFIs   o  77  percent  if  mulCple  borrowing  means  borrowing   from  one  MFI  as  well  as  from  any  other  source  of   finance  
    • Summary  and  Concluding  ObservaCons  •  Mul-ple  borrowers  take  out  mul-ple  loans  for  a  variety  of   reasons.  Some  report  that  a  single  loan  is  insufficient  to   pay  for  a  major  consumpCon  expenditure  or  to  invest  in  a   business  acCvity.  Some  are  aUer  the  auxiliary  services   a?ached  to  various  loans.    •  We  are  unable  to  find  a  dis-nc-ve  sta-s-cal  profile  of   mul-ple  borrowers.  There  is  some  evidence  to  suggest   that  they  are  older  and  are  on  longer  loan  cycles,  but   otherwise  there  is  (to  date)  no  strong  staCsCcal  links   between  mulCple  borrowing  and  individual  demographic   characterisCcs  as  well  as  characterisCcs  of  the  loan  itself   (size,  loan  cycle,  reported  loan  use).    
    • Summary  and  Concluding  ObservaCons  •  There  is  no  evidence  that  mul-ple  borrowing  is   associated  with  delinquent  payment,  at  least  not   among  the  acCve  clients.    •  This  should  be  interpreted  with  cau-on.  This  indicates   the  average  observable  outcome  to  date.  We  are   unable  to  say  anything  meaningful  about  the  likelihood   of  falling  into  delinquency.  There  are  large  differences   in  the  availability  of  informaCon  on  missing  payments   and  the  data  are  not  fully  consistent  across  MFIs.   Furthermore,  the  sample  represents  a  parCcular  urban   community.  It  is  not  clear  whether  this  relaConship   holds  more  generally.    
    • 1.  Branch  Client  Data  SELECTED  RESEARCH  FINDINGS  
    • Branch  Client  Data:  Selected  Results   14  percent   Incidence  of  Mul-ple  Borrowing   •  On  average,  14  percent  of  MFI  clients   •  SubstanCal  variaCon  across  MFIs  (4-­‐26  percent)  
    • Branch  Client  Data:  Selected  Results  Incidence:  Within-­‐MFI  Mul-ple  Borrowing  •  “Within-­‐MFI”  mulCple  borrowing  also  exists,  i.e.,   mulCple  loans  from  the  same  MFI   •  Most  cases  appear  to  be  known  to  the  MFI   •  Some  may  not  be  known  (borrowing  from  several   branches)  •  On  average,  where  they  exist,  within-­‐MFI   mulCple  borrowers  represent  5  percent  of  all  MFI   clients  •  Some  overlap  with  mulCple  borrowing  as  defined   previously  (14  percent)  
    • Branch  Client  Data:  Selected  Results   Number  of  Loans   •  Most  mulCple  borrowers  have  loans  from  only   2  MFIs   •  About  15  percent  of  mulCple  borrowers  have   loans  from  3  or  more  MFIs  
    • Branch  Client  Data:  Selected  Results  Share  of  Outstanding  Loans  •  Loan  sizes  tend  to  be  uniform.  As  a  result,  the   share  of  loans  accounted  for  by  mulCple   borrowers  tend  to  be  proporConal  to  the   incidence  of  mulCple  borrowing  (14  percent)  •  However,  among  mulCple  borrowers  who  also   take  out  mulCple  loans  from  the  same  MFI   (within-­‐MFI  mulCple  borrowing),  their  share  of  all   outstanding  2nd  or  3rd  loans  within  the  same  MFI   tends  to  be  large  (40  percent).  
    • Branch  Client  Data:  Selected  Results  Correlates  •  In  general,  no  strong  evidence  linking  mulCple   borrowing  to  specific  lengths  of  membership,   loan  cycles,  client  age,  and  other  demographic   pa?erns.    •  There  are  some  suggesCve  pa?erns.     •  MulCple  borrowers  with  two  or  three  loans  tend  to  be   on  longer  loan  cycles.     •  MulCple  borrowers  also  tend  to  be  somewhat  older  
    • Branch  Client  Data:  Selected  Results  Delinquency  •  There  is  no  evidence  that  mulCple  borrowing  is  associated  with   delinquent  payment,  at  least  not  among  the  acCve  clients.    •  This  should  be  interpreted  with  cauCon.  This  indicates  the   average  observable  outcome  to  date  and  does  not  at  all  address   the  possible  impact  of  economic  or  income  shocks  and  whether   mulCple  borrowers  can  fall  into  delinquency  as  a  result.    •  There  are  large  differences  in  the  availability  of  informaCon  on   missing  payments.  The  data  are  not  recorded  consistently  across   MFIs.  •  May  reflect  business  opportuniCes  in  a  parCcular  urban   community.  The  economics  may  differ  in  other  communiCes,   including  rural  communiCes.  
    • 2.  Household  Survey  SELECTED  RESEARCH  FINDINGS  
    • Household  Survey:  Selected  Findings   57  percent  of   Percent  of  Indebted  Households households:  at   least  one   (By  source,  in  percent  of  all  households) outstanding   loan   All 57.0 MFIs 6.8 Private  commercial  banks 2.5 Lending  investor 6.4 Only  6.8   percent  of   Private  moneylender 9.3households  are   MFI  clients   Pawnshop 1.9 Government  banks 0.8 SSS 16.6 Employer 7.3 Family,  friends 24.5 Store 23.8 Credit  card 3.1
    • Household  Survey:  Selected  Findings   Distribution  of  Households   (By  level  of  indebtedness) Multiple   debt 32% No  debt 43%This  chart  refers  to  all  households.  Of  the  MFI  client  households  alone,  77  percent  are   Single  debt“mulCple  borrowers”,     25%all  sources  of  finance  considered.  
    • Household  Survey:  Selected  Findings   Multiple  Borrowers Multiple  Borrowers  among  MFI  Clients (By  number  of  loans) (By  number  of  loans) 5+  loans 12% 5+  loans 2  loans 24% 29% 4  loans 16% 2  loans 47% 4  loans 9% 3  loans 25% 3  loans 38% These  charts  show  mul-ple  borrowers  by  number  of  loans  (all  sources   of  finance  considered)   •   For  mulCple  borrowers  as  a  group,  52  percent  have  3  or  more  loans.   •   For  mulCple  borrowers  MFI  clients  as  a  group,  71  percent  have  3  or   more  loans  
    • Household  Survey:  Selected  Findings   Multiple  Borrowing: Self-­‐Reported  Loan  Use   One  loan  is   insufficient  to  start   or  expand  business. 11% One  loan  is   insufficient  to  pay   A  recent   shock   for  a  major   (illness,  death,  job   consumption   loss) expenditure,   etc. 16% 46% Part  of  the  loan  was   used  to  pay  for   tuition Part  of  the  loan   8% used  to  pay  off   existing  debt 19%
    • Household  Survey:  Selected  Findings   How  Many  Times  Did  You  Miss  Payments     The  Last  3  Months?     All  Indebted  Households Multiple  Borrowers Twice  or  more 10% Once Twice  or   7% more 13% Once 9% Zero Zero 83% 78% There  is  no  evidence  that  mul-ple  borrowing  is  associated  with  higher   delinquency,  compared  with  average  indebted  household.   •   Caveat:  based  on  self-­‐reported  informaCon   •   This  is  from  cross-­‐secConal  informaCon  or  informaCon  from  a  single   point  in  Cme  
    • 3.  Focus  Group  Discussions  SELECTED  RESEARCH  FINDINGS  
    • FGDs:  Selected  Findings  •  ParCcipants  consisted  of:   o  MFI  members  known  or  who  have  admi?ed  to  having   loans  from  at  least  one  other  MFI   o  Branch  staff  •  MFI  clients  were  selected  by  MFI  staff.  Only  criterion   was  that  they  have  borrowed  or  have  current  loans   from  at  least  two  MFIs  •  Each  group  consisted  of  8  to  12  discussants  
    • FGDs:  Selected  Findings  Profiles  of  FGD  parCcipants   •  A  number  of  parCcipants  are  center  chiefs  or  group   leaders  in  the  MFIs   •  Have  had  many  years  of  borrowing  experience   •  Long  Cme  residents  of  Commonwealth  (one  had  been   resident  in  area  for  30  years)  Borrowing  behavior  reported   •  Borrowed  sequenCally  from  several  MFIs     •  Borrowed  simultaneously  several  MFIs  
    • FGDs:  Selected  Findings  On  prolifera-on  of  lending  sources  •  Clients  observed  that  there  has  been  an  increase  in  the  number  of   lenders  in  the  area  recently,  as  recent  as  the  past  year  (2010-­‐2011)  •  Clients  appreciated  the  availability  of  more  choices  •  Some  cited  concerns  about  their  own  inability  to  repay  so   expressed  preference  to  stay  with  one  MFI    Reasons  for  borrowing  from  mul-ple  sources  •  To  maximize  benefits.    No  one  single  MFI  offers  a  whole  range  of  •  Obtain  sufficiently  large  consolidated  loan  from  several  MFIs  as  one   MFI  loan  is  not  sufficient  for  their  needs  •  To  meet  emergency  needs  •  To  try  out  other  sources  •  To  stagger  payments  (mulCple  loans  from  the  same  MFI  are  paid  on   the  same  day;  mulCple  loans  from  mulCple  loans  can  be  staggered)  
    • Lenders Identified by FGD ParticipantsFGD  1&2   FGD  3&4   FGD  5&6   MFI  Staff   8   10   8   45