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