Default Risk and Debt Recovery Strategies of Microfinance Institutions: A Comparative Study of MFIS in Ghana

Abstract

The objective of this research is to identify and compare the strategies used by SIL and PCSL[1] to minimise the risk of loan default and to recover debt. It also evaluates the effectiveness of the debt recovery strategies. The data was collected through questionnaire administered to the management and staff of both institutions in addition to information obtained from their financial statements. The percentage of non-performing loans to the total loan portfolio of both institutions from 2008-2010 was compared to the industry figures. The findings were that PCSL’s non-performing loans ratio was below the industry average. There was no difference between the industry’s average and SIL’s non-performing loans ratio. The research concluded that the debt recovery strategies of PCSL are comparatively better than strategies adopted by SIL.

Key words: Non-performing loans, Debt recovery, MFIs, Ghana.

[1] The decision of the researchers based on the understanding with the MFIs involved in the study is to use their abbreviated names in publications.  However, their full names will be made available upon request to the authors through their email addresses.