Transcript MiriamMatzanke-conference Sep 11_v2

Reasons for multiple borrowing
and its impact on the repayment performance
PhD research project of Miriam Matzanke
supervised by Dr. Ana Marr and Dr. John Orchard
in cooperation with Financiera EDYFICAR, Peru
Agenda
1 Research topic
2 Literature review
3 Methodology
4 Preliminary qualitative findings
5 Structure of quantitative data
1
Research topic
Reasons for multiple
borrowing and its impact on
the repayment performance
1
Research topic
• Microfinance is highly competitive
• In Peru, diverse lenders compete for the microentrepreneurial clientele
Back- • The microfinance penetration measured as borrowers/poor
ground
population was 10.4% in 2010 (compared to 11.5% in Bolivia)
• Several clients follow a multiple borrowing strategy
 Use of a micro credit and simultaneously use of at least
one additional loan from at least one different source
Source: MixMarket, Country Profiles Bolivia and Peru, November 2010
1
Research topic
1. What are the main reasons for clients to follow a
multiple borrowing strategy?
Research
Question
2. Which impact does multiple borrowing have on the
repayment performance of the clients?
• Which factors influence the impact?
2
Literature review
Hoff and Stiglitz (1998) touch the topic indirectly
• competition reduces the effectiveness of reputation
effects and the borrowers’ incentive to repay
Theore- • degree of information sharing is crucial
tical
literature McIntosh and Wydick (2005)
• competition can cause borrowers to take multiple loans
which impacts the repayment performance negatively
• degree of information sharing is crucial
2
Literature review
Empirical • Two types: opportunity-driven and distress-driven
literature • Not clear which reasons dominate
Reasons
 Combination of quantitative and qualitative data per
client could deliver a more complete picture
Empirical • Krishnaswamy (2007) finds a positive impact of multiple
borrowing on the repayment performance, whereas
literature
Vogelgesang (2003) finds a two-fold influence structure
Impact
• McIntosh, de Janvry and Sadoulet (2005) describe
negative impact of competition on multiple borrowing
2
Literature review
• Holistic approach to cover reasons for multiple
borrowing and its impact in an environment with
Contriintense information sharing
bution of
this study
• Rigorous methodology
3
Methodology
• Data kindly provided by the Peruvian Financiera EDYFICAR
Quanti- • Comprehensive database including information on
tative
EDYFICAR loans and on the clients’ other loans
analyses • Objective is to quantify the impact of multiple borrowing on
the repayment performance
• Data to be collected via interviews
 with management and staff from the MFI
Qualitative
 in-depth interviews with clients of the MFI
analyses • Combination with quantitative data for the same clients
• Objective is to understand reasons for multiple borrowing
4
Preliminary qualitative findings
• Transparency in the Peruvian financial market is
amazingly high
Market
• Comprehensive client data is provided by the
Superintendencia and private companies
• Clients with good repayment histories are easily
identified by financial institutions
4
Preliminary qualitative findings
• Many clients would prefer to have a relationship with
one single lender
Reasons
• Nevertheless, multiple borrowing is a frequently used
strategy
 When analyzing the reasons, the supply side has
to be taken into account
4
Preliminary qualitative findings
• According to EDYFICAR’s internal analyses, multiple
borrowing is likely to have a negative impact on the
repayment performance
Repayment
• But there are clients that manage multiple loans
successfully
 What are the determining factors?
5
Structure of quantitative data
Loan at t=1 with MFI
Loan information, e.g.
interest rate, amount etc.
Client 1
Attributes of the client, e.g.
name, gender, age, business
sector etc.
Other loans at t=1
in financial system
Information on client’s situation
in the system, e.g. number of
creditors, number of loans,
total debt
Repayment information, e.g.
schedule, punctuality of
payments
Loan at t=2 with MFI
Loan information, e.g.
interest rate, amount etc.
Repayment information, e.g.
schedule, punctuality of
payments
Other loans at t=2
in financial system
Information on client’s situation
in the system, e.g. number of
creditors, number of loans,
total debt
Questions?
Which are further aspects that
should be considered?
Thank you for your attention!