Factors influencing loan defaults on microfinance institutions for loans granted to the informal Sector. A case study of KCI Management Consultants
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This study was conducted in order to find out the factors associated with loan default on loans granted to the informal sector by MFIs activities using KCI Management consultants in Gokwe as a case study. This study specifically focused on finding out the causes of loan default on MFIs and examining extent in which loan supervision, monitoring and control affects loan repayment, identifying whether multiple borrowing by clients leads to loan default, finding out whether the use of funds by clients for unintended purpose contribute to loan default. Research design used was case study design. The study was carried out in Gokwe Centre and the sample size comprised of 50 clients who benefit from KCI Management consultants services and 6 loan officers of KCI Management consultants. Sampling techniques implemented was Simple random sampling technique used for loan officers and purposive sampling technique used in sampling MFIs clients’ .Data was analysed, and presented in the form of frequencies, percentages and tables using MICROSOFT EXCEL. The study findings revealed that interest rates charged on loans, diverting funds from its intended use, multiple borrowing has a direct influence which is negative on loan repayment. The research also revealed some of the causes that contributed to the default by some customers such as lack of supervision on loan utilisation and lack of control of the staff who are operating low level since they actually know the behavior instead of credit scoring method. The study also showed that MFIs should also provide appropriate training and supervision to clients regarding the use of their loans. Furthermore MFIs should have clear and effective credit or lending policies and measures and must be regularly reviewed. Recommendations were put forward and mainly focused on the enforceability of the credit policy.