high loan default rate in credit unions

8/3/2019 High Loan Default Rate in Credit Unions

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Presented bySAMUEL K. BADU OCRAH 10259070 ACCOUNTINGFREDUA AGYEMANG A. 10258956 ACCOUNTINGBOATENG VICTOR 10258898 ACCOUNTINGKOFI AGYEMANG MANU 10123996 ACCOUNTING

OBENG TWUM DANIEL 10259065 ACCOUNTING

4/22/2012NOBLE GROUP



In Ghana, Credit Unions plays important role in the economic development of thecountry. Currently, there are about 527 unions with total membership of over550,000 operating under apex body of credit unions Association (CUA)

The main aim of establishing credit unions is to help small and medium

enterprises through savings and loans scheme for their members

In recognition of the role of Credit Union institutions in a nation development,Ghana operationalized the concept of Credit Unions in the 1950’s.

The study will attempt to investigate the reasons why members default in loansand to look into the problems encountered in issuance of loan.




The study aims at investigating the reasonswhy members of St. Martin De Porres CreditUnion members default in loan repayment

The research also aims at establishing the

contribution of Credit Unions to the economicgrowth and development of Ghana.

Another aim of the study is to look into theproblems confronting members in assessing

the loans. To find out if guarantorship is ineffective

leading to high defaults.




The methodology and procedure used for the study

were both qualitative and quantitative method. Thisconstitutes the data collection methods, the sample andthe samplings techniques, the design and thepopulation of the study.

Researchers interviewed management and members of St martin De porres credit union.

Questionnaires were sent about two months ago and hadabout 90% response rate

Limitations The researchers encountered various difficulties such

as financial constraint. Another constraint was the time used to explain the

questionnaires to the beneficiaries since most of themcould not read and write.




Educational Background The study showed that education has not been

barrier to having credit. Some of the respondents hadnot obtained any form of formal education.

The Relevance of GenderFemales formed the majority of microfinance clientsin the town, yet about 60% of the default rate wasmale.

Nature of operationThe nature of operation has influence on repaymentthus agriculture sector had the highest default rate .




Volume of Credit received by ClientsIt appears that the loan size has effect on the

repayment rate ,the lower the loan size, the lowerthe defaults rate.

Interest Rate ChargeInterest charge increases the cost of the loan,

higher interest means a higher cost andreduction of returns on investment, reducedreturns on investment increases the chance of default. The opposite is expected to be the case,thus the lower interest rate, the lower rate of default.




Repayment periodWhen the loan repayment is long there could be a

lax in loan monitoring activities. This could resultin poor repayment.

Gurantorship

Usually, the union requires that prospectiveborrowers give the union a lien on their account

with union, the lower the lien, the higher thedefault. It appears that borrowers do not see lienas enough inducement for repayment.




The following were found to have contributed immensely to the loan delinquency

of St. martins de Porres thus educational level of beneficiaries, gender of beneficiaries, type of economic activities, volume of credit per beneficiaries.

However the following were realised to be unimportant as far as loan delinquency of St. Martin de Porres is concerned Interest rate, repayment period, guarantorshipand pledge on account balance, Beneficiaries’ awareness of benefit of project

RecommendationsThe following recommendations were made to St martin de porres credit union

I. Thorough education should be given to prospective beneficiariesII. Certain economic activities, especially those known to bring about high rate of

default such as long term farming, should as much possible be excluded frommicrofinance schemes.

III. Women should be encouraged to play leading role in microfinance schemesinvolving group since women were seen to honour their financial obligationsmore then men.

IV. Proper appraisal should be conducted to determine appropriate size of loansfor various activities to forestall misapplication of excess funds.



http://slidepdf.com/reader/full/high-loan-default-rate-in-credit-unions 9/94/22/2012NOBLE GROUP

high loan default rate in credit unions

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