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

SUMMARY This is a heroic a?empt at a 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


•  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).


•  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.

SELECTED RESEARCH FINDINGS 1. Branch Client Data

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)


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)


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


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).


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


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.

SELECTED RESEARCH FINDINGS 2. Household Survey

3.1

23.8

24.5

7.3

16.6

0.8

1.9

9.3

6.4

2.5

6.8

57.0

Credit card

Store

Family, friends

Employer

SSS

Government banks

Pawnshop

Private moneylender

Lending investor

Private commercial banks

MFIs

All

Percent of Indebted Households(By source, in percent of all households)

Household Survey: Selected Findings 57 percent of households: at

least one outstanding

loan

Only 6.8 percent of

households are MFI clients

Household Survey: Selected Findings

No debt43%

Single debt25%

Multiple debt32%

Distribution of Households (By level of indebtedness)

This chart refers to all households. Of the MFI client households alone, 77 percent are “mulCple borrowers”, all sources of finance considered.


2 loans29%

3 loans38%

4 loans9%

5+ loans24%

Multiple Borrowers among MFI Clients(By number of loans)

2 loans47%

3 loans25%

4 loans16%

5+ loans12%

Multiple Borrowers(By number of loans)

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


One loan is insufficient to start or expand business.

11%

A recent shock (illness, death, job

loss)16%

Part of the loan was used to pay for

tuition8%Part of the loan

used to pay off existing debt

19%

One loan is insufficient to pay

for a major consumption

expenditure, etc.46%

Multiple Borrowing:Self-‐Reported Loan Use

Household Survey: Selected Findings How Many Times Did You Miss Payments

The Last 3 Months?

Zero83%

Once7%

Twice or more10%

All Indebted Households

Zero78%

Once9%

Twice or more13%

Multiple Borrowers

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

SELECTED RESEARCH FINDINGS 3. Focus Group Discussions

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


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


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 Participants

FGD 1&2 FGD 3&4 FGD 5&6 MFI Staff

8 10 8 45

Business

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