| Abstract: |
Microfinance borrowers tend to have no properties to offer as loan security
(collateral) as they are poor and low-income, and thus would constitute a
considerable risk to lenders once they default. MFIs, therefore, have to
device a system to ensure that loan defaults are as low as possible in order
to maintain their financial sustainability, without which they would resort to
higher interest rates that would only defeat the original intent of their
microfinance lending philosophy.This paper seeks to identify factors that
affect the voluntary exits or forced eviction of Philippine borrowers from
microfinance lending networks focusing on indicators that are (a)internal to
the borrowers? personal circumstances and business operating environments;
and(b)those that capture the microfinance institutions? loan delivery
operations. The analysis will analyze data compiled by the Social Enterprise
Development Partnerships, Inc. (SEDPI) on micro-insurance borrowers in the
Philippines from 2000 to 2010. Econometric analysis will employ Heckman
selection techniques to determine significant determinants of either the
forced eviction or the voluntary exit of MFI borrowers. Two versions of the
Heckman equation system will be developed. The first version defines the
selection equation to select MFI borrower observations who were forced to
leave the program (FORCED=1; VOLUNTARY=0) for the outcome equation that
identifies significant factors behind such MFI action. The second version?s
selection equation focuses on the voluntary borrower exits (VOLUNTARY=1;
FORCED=0) so that the outcome equation will determine significant factors
behind such borrowers? decisions. Explanatory variables will capture personal,
business, Centre-related, and macroeconomic factors. Expected results will
shed light on how sudden changes in personal circumstances of certain
borrowers (physical and economic), business viability issues (often associated
with macroeconomic conditions), and institutional factors affecting borrower
servicing and other borrower-lender relationship issues may lead to either the
MFIs? decision to evict certain borrowers or individual borrowers voluntarily
deciding to exit from the MFI lending system. This study offers important
implications on achieving a proper balance of financial sustainability and
social outreach goals of microfinance operations. This balancing of goals has
been a difficult challenge for most MFIs globally. The Philippine microfinance
experience may help shed light on possible remedies to this elusive balancing
goal. |