Managing Risk and Promoting Success: How Microfinance Lenders Can Better Utilize Borrower Insights for Collateral Strategy
Public Deposited- Last Modified
- February 26, 2019
- Creator
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Hedadji, Mohammed
- Affiliation: Kenan-Flagler Business School
- Abstract
- At its conception, microfinance was a lending mechanism designed to alleviate poverty by providing group-structured lending to those who could not otherwise receive financing. As it has spread into new markets, microfinance lending has grown and changed significantly — especially as the model was adopted in the United States. While its goal is still to fund and empower entrepreneurial ventures by lending to the poor, the payment and collateral structure of microfinance in the U.S. is drastically different from the original microfinance model established by the Grameen Bank in Bangladesh. The most notable difference, the lack of social collateral, has contributed to higher default rates (and thus, higher operating costs) and slower growth among microfinance institutions in the U.S., relative to much of the world. Higher default rates are important because they have pushed U.S. micro-lenders to find new ways to mitigate the risk of these loans, including the use of individual lending models and/or physical collateral. Prior literature has discussed the various forms of collateral available to microlenders, their potential uses in the U.S., and the impact of each on operating costs and margins. But there has been little research conducted surrounding lender meetings/interactions as a potential form of collateral. Furthermore, little research has been done to quantify the effectiveness and importance of these forms of collateral from the borrower’s perspective. Overall, the voice of the borrower has been largely excluded from the loan-structuring process. To address these gaps, I conducted research with borrowers from two microlending institutions: The North Carolina Rural Center and The Women’s Microfinance Initiative of Uganda. I selected these two lenders to compare and contrast different loan features and collateral tools in a domestic and international setting. Additionally, the two samples represented one struggling microlender (NC Rural Center) and one successful high-growth lending institution (WMI-Uganda). My findings suggested that more frequent lender meetings/interactions can potentially help reduce late/missed loan payments. Additionally, my findings indicated that incremental professional development courses could potentially serve as collateral for borrowers, influencing borrowers to repay their loans, and improve their ability to do so (thus reducing overall risk).
- Date of publication
- spring 2017
- Keyword
- DOI
- Resource type
- Rights statement
- In Copyright
- Note
- Funding: None
- Advisor
- Hawn, Olga
- Degree
- Bachelor of Science
- Academic concentration
- Business Administration
- Honors level
- Honors
- Degree granting institution
- University of North Carolina at Chapel Hill
- Graduation year
- 2017
- Language
- English
Relations
- Parents:
This work has no parents.
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