June 9, 2015 In
On Going Research-02
“Causes of borrowers’ drop-outs and its impact on Microfinance institution: A case study on Prottyashi Microfinance activities”
Over the last three decades, microfinance has captured the attention of donors and policy makers for its ability to provide credit to the poor who have no access to commercial banks. The purpose is that with additional income and determination, poor people can set up income generating activities in order to reduce their vulnerability and combat poverty. The success of microcredit programs have been well documented in numerous studies. Many practitioners have a strong belief that microfinance can contribute positively in the lives of low income households. These studies have shown that clients of microfinance institutions witnessed a positive impact at different levels: at a household level, by increasing their income and their consumption at an enterprise level, by contributing to capital accumulation and creation of employment opportunities and last but not least, at the community level, by employing new workers within poor groups.
Despite all of efforts, there are still dropouts from MFIs. The East African MFIs case illustrates the high rate of dropouts (25%-60%) are face and that could undermine the success of the programs. Although clients dropout over-time, even from the most successful organizations, in microfinance sector, dropout is portrayed as a negative phenomenon by many practitioners, because both MFI and clients have much to gain from a long-term banking relationship. The number of dropouts a MFI programs experience has profound implications for the viability of the institution and reveals a great deal about the quality of the financial services it offers to its clients. High dropout rates often indicate dissatisfaction with the financial services being offered by the institution. The increasing awareness of the importance of the number dropouts a programs experience has prompted a series of studies in recent years in Bangladesh. Members “dropping-out” or leaving an MFI cost the organization dear both in terms of lost investments in initial training and in terms of the opportunity costs of losing the older, more experienced members most likely to take larger loans. Few studies have, however, been carried out on the dropout issue, not because it is less important, but because it is difficult and expensive to locate clients once leave an MFI. The factors for dropping out identified by previous studies are many and illustrate a wide range of reasons. In overall, the majority of studies found that most clients exit due to organizational failures, idiosyncratic shocks and or systemic shocks, client maturity and competition. In the line with the above insights, this study aims to analyze some elements of dropout issue namely (i) the determination of the profile of ex-clients; (ii) the identification the main reason leading to dropout and (iii) the determination of the variables which influence the length of time in the MFI which is the cornerstone of this research.